No go on premium tax deduction
Cutting the price of health insurance was always central to President Donald Trump's health care policy, and one piece of that was to let ordinary people deduct the cost of premiums on their tax returns.
"Businesses are allowed to take these deductions, so why wouldn't Congress allow individuals the same exemptions," Trump said on his campaign website.
Set aside that one of the biggest tax breaks in the nation (worth about $300 billion in 2018, according to the Congressional Budget Office) is that those health benefits from employers are tax-free to employees. Our focus is strictly on the status of Trump's proposal.
It went nowhere.
There were two main opportunities: the Republican health care and tax cut bills in 2017. Deductibility of insurance premium failed to make it into either one.
"There has been no change," said private health policy consultant Robert Laszewski told us.
In our last update, Laszewski noted that tax credits had edged out deductibility as a way to make insurance more affordable. Tax credits would reach more people because anyone who qualified could take them, while deductions only help people who itemize on their tax returns, or only about 30 percent of tax filers.
At the end of the day, neither tax credits nor deductions made it through.
"There have been no changes to the tax treatment of insurance premiums," said Urban Institute senior fellow Howard Gleckman.
We rate this Promise Broken. That can change based on what happens during the remainder of Trump's first term.
Congressional Budget Office, Reduce Tax Subsidies for Employment-Based Health Insurance, Dec. 13, 2018
Email interview, Robert Laszewski, CEO Health Policy and Strategy Associates, Jan. 2, 2019
Email interview, Howard Gleckman, senior fellow, Urban Institute, Jan. 3. 2019
GOP plan includes limited tax credits not full tax deduction
As part of his plan to repeal and replace Obamacare, President Donald Trump had one specific idea to make insurance more affordable. He said he would let people treat their insurance premiums as a tax deduction.
"Businesses are allowed to take these deductions so why wouldn't Congress allow individuals the same exemptions," Trump had on his campaign website.
A sure sign that this plan was moving forward would have been to see it in the American Health Care Act. But it isn't there.
Private health policy consultant Robert Laszewski told us that House Republicans considered the deduction option.
"The Republicans have just had a battle — advanceable tax credits or tax deductibility," Laszewski said. "Advanceable tax credits won out."
Advanceable tax credits allow taxpayers to reduce their tax bills by the amount of the tax credit. For people who buy insurance on their own, not through an employer, credits would be available on the following schedule:
• Under age 30: $2,000
• Between 30 and 39: $2,500
• Between 40 and 49: $3,000
• Between 50 and 59: $3,500
• Over age 60: $4,000
No household would get more than $14,000 worth of credits and the credits taper off for single filers making over $75,000 and joint filers making over $150,000.
As soon as an eligible person buys insurance, the money would be available to the insurance company (that's the advanceable part). The person's tax bill goes down by the amount of the credit, and the insurance company knows it will get that money. The goal is to make insurance more affordable.
Laszewski said he thinks there's zero chance the tax deductibility approach will come back. He also noted that deductibility favors those who make more money and tax credits are better for those who make less.
Howard Gleckman, a senior fellow at the Tax Policy Institute, an academic center in Washington, agreed.
"Many more people are eligible to take a credit than a deduction, since 70 percent of households do not itemize," Gleckman said.
There could be another, more procedural reason, tax deductibility didn't show up in the American Health Care Act. The House Republican bill has to thread the needle of the special rules that apply to the parliamentary process called budget reconciliation. In theory, anything in a reconciliation bill has to focus on spending and taxes. Making premium payments deductible would qualify, but as Molly Reynolds at the Brookings Institution explained, it isn't that simple.
Reynolds is a master of congressional procedure. Budget reconciliation takes place under the Byrd Rule, requirements established by the late Sen. Robert Byrd, R- W.Va. One limit is that if a measure increases the deficit, lawmakers must include something else to keep the books balanced.
"If health insurance deductibility was included in a reconciliation bill and scored as a revenue loser outside the 10-year window, those losses would need to be offset," Reynolds said.
Trump promised that insurance premiums would be tax deductible. What the House Republican health care bill offers is tax credits, which benefit taxpayers, but in a different way.
What we can say for certain is that deductibility is off the table for now. We'll wait to see how the tax credit proposal fares in Congress. For now, this promise is Stalled.
Donald Trump for President, Health care reform to make America great again, accessed March 14, 2017
U.S. House Ways and Means Committee, Repeal and replace of tax-related health policy, March 6, 2017
Email interview, Robert Laszewski, CEO Health Policy and Strategy Associates, March 14, 2017
Email interview, Howard Gleckman, senior fellow, Tax Policy Center, March 14, 2017
Email interview, Molly Reynolds, fellow, Governance Studies, Brookings Institution, March 14, 2017