The Tax Cuts and Jobs Act: Implications for Healthcare

By Ken Perez, vice president of healthcare policy, Omnicell, Inc.

Ken Perez
Ken Perez

H.R. 1, The Tax Cuts and Jobs Act (TCJA), gained passage in the Senate (by a 51-48 vote) and the House (by a 224-201 vote) on Dec. 20, 2017, and two days later, President Donald Trump signed the bill into law.

The TCJA constitutes the biggest tax reform legislation in three decades for the U.S. and unquestionably the most significant legislative accomplishment of the Trump administration in 2017. Two provisions and one possible pitfall of the TCJA are most relevant to the healthcare industry.

Decrease in the corporate tax rate from 35 percent to 21 percent

This change, excluding other provisions of the TCJA, will clearly benefit for-profit hospitals and health systems, as well as pharmaceutical companies.

Repeal of the Affordable Care Act’s individual mandate

Starting in 2019, the TCJA repeals the ACA individual mandate that requires all Americans under 65 to have health insurance or pay an annual penalty, $695 per person or 2.5 percent of income—whichever is higher.

Per the Congressional Budget Office’s November 2017 analysis, “Repealing the Individual Health Insurance Mandate: An Updated Estimate,” the repeal of the individual mandate in 2019 would increase the number of uninsured Americans—relative to a baseline that assumes continuation of cost-sharing reduction (CSR) subsidies in the ACA marketplaces—by 4 million in 2019, with that figure growing to 13 million in 2025 and remaining at that level thru 2027.

According to the CBO, the 13 million is composed of five million people who would not choose to obtain coverage thru the individual insurance market, five million people who would not enroll in Medicaid—not due to a pullback of the ACA’s Medicaid expansion, as that was not in the TCJA—and three million people who would choose to no longer have employer-sponsored insurance. The CBO admits that its projections are uncertain and states, “The preliminary results of analysis using revised methods indicates that the estimated effects on the budget and health insurance coverage would probably be smaller than the numbers reported in this document.”

With regard to the CSR subsidies, in October 2017, the Trump administration made a decision to halt CSR payments, so the baseline used by the CBO does not actually reflect the status quo, and it overstates the impact of the tax reform bill.

In addition, the CBO’s analysis did not take into account the economic benefits of the tax reform law to lower-income Americans—especially single filers and married taxpayers filing jointly who are in the second-lowest income bracket—which could actually help boost enrollment in health plans. Thus, how many more Americans will be uninsured as a result of the TCJA is not clear.

Of course, an increase in the number of uninsured Americans would contribute to increased uncompensated care (charity care and bad debt) for hospitals and health systems. Thus, commenting on the TCJA, the American Hospital Association stated, “We are also disappointed that the tax legislation passed with a provision that would eliminate the individual mandate, which would result in the loss of health insurance coverage for millions of Americans. The goal of the ACA was to extend coverage and, as a result, millions have benefitted from access to needed care.”

Mandatory spending cuts to Medicare?

The CBO projected earlier versions of the tax reform bill would increase the federal debt by $1.5 trillion to $1.7 trillion over 10 years. According to congressional “pay-as-you-go” (PAYGO) rules, mandatory spending cuts would be imposed if the bill that is passed by both chambers of Congress increases the debt by more than $1.5 trillion over 10 years. The maximum cut to Medicare would be 4 percent or roughly $25 billion in 2018. However, Congress waived the PAYGO rule, so mandatory spending cuts will not kick in, much to the relief of hospitals and health systems.


Given the extraordinarily contentious year on Capitol Hill in 2017, low expectations for bipartisanship, and the Trump administration’s stated legislative priorities of infrastructure and immigration in the year ahead, the tax reform law will likely remain the piece of legislation under this administration with the biggest continuing impact on healthcare through the 2018 midterm elections.

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