Tax Reform & Changes to Healthcare Stemming from Tax Cuts & Jobs Act

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In the previous months leading up to today, there has been significant legislation regarding tax reform and jobs that also effects the health care climate. Below you'll find a brief summary of some of these changes that will be rolling out throughout the remainder of 2018, into 2019 and beyond. For a complete and more in depth summary of these changes, you can access the rest of the article here.

  1. Reduction of the Individual Mandate Penalty: Beginning in 2019, this "reduction" will set the penalty to $0. Although this leaves room for a future congress to reinstate the penalty, it is predicted that over 4 million less people will have health coverage in 2019 due to it's repeal.
  2. Pay-as-You-Go Act Ramifications: Because the tax bill adds to the deficit, it triggers the 2010 "pay as you go" law which would result in an estimated annual cut of $25 billion to Medicare, $900 million to the Prevention and Public Health Fund, and $715 million to the Federal Hospital Insurance Trust Fund. Medicaid is exempt.
  3. Medical Expense Tax Deduction: Current tax law allows filers to deduct medical expenses that exceed 10% of income. The bill retains this itemized deduction and temporarily lowers it to 7.5% of adjusted gross income for 2017 and 2018. The threshold returns to its current 10% in 2019 and thereafter. Nearly three-quarters of tax filers using this deduction are age 50 or older and live with a chronic condition or illness according to the American Association of Retired Persons (AARP).
  4. Executive Compensation Excise Tax: The bill imposes a 21% excise tax on executive compensation of more than $1 million and "excess parachute payment" for any of the five highest-compensated employees of certain tax-exempt organizations, including nonprofit health systems. For purposes of determining a covered employee, remuneration paid to a licensed medical professional that is directly related to the performance of medical services by such professional is not taken into account.
  5. Orphan Drug Research Credit: Currently, companies can claim a 50% tax credit for qualified clinical testing expenses incurred in testing certain drugs for rare diseases or conditions for disease populations with fewer than 200,000 individuals nationally, generally referred to as "orphan drugs." The tax bill reduces the credit rate to 25% of qualified clinical testing expenses effective in 2018.

Payment Reform and Value-based care are at the heart of the Delaware Center for Health Innovation’s (DCHI) efforts towards making Delaware one of the top five healthiest states in the nation. With the goals of being in top 10% of states in health care quality and patient experience, bringing the growth of health care costs in line with GDP growth, and improving the provider experience, DCHI is working in conjunction with public and private stakeholders to advance outcomes in Delaware by 2020. For more information please visit us at

**Articles are intended to foster meaningful discussion about the opportunities and challenges driving healthcare reform**

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