United States: Tax Reform Changes To Healthcare

Miranda Franco is a Senior Policy Advisor in Holland & Knight's Washington D.C. office

Following a final vote in the U.S. House of Representatives on Wednesday morning, Dec. 20, 2017, Congress sent the Tax Cuts and Jobs Act (H.R. 1) to President Donald Trump's desk. In addition to extensive revisions to the tax code, the bill includes major provisions that will affect the healthcare industry. Below is an outline of some of these provisions.

Reduction of the Individual Mandate Penalty: Most notably, effective Jan. 1, 2019, the bill eliminates the tax penalty under the Affordable Care Act (ACA) for individuals who do not obtain qualifying healthcare insurance. The Congressional Budget Office has estimated that repeal of the individual mandate will result in about 4 million fewer individuals having health coverage in 2019, rising to 13 million by 2027. Additionally, exchange premiums would rise by approximately 10 percent, due largely to a less healthy risk pool. It is worth noting that the bill language amends the individual penalty to set the amount at "0". In theory, a future Congress could reinstate a penalty amount by changing that number.

Pay-as-You-Go Act Ramifications: Because the tax bill adds to the deficit, it triggers requirements of the 2010 "pay as you go" (PAYGO) law that requires offsetting mandatory cuts (sequesters) to non-exempt entitlement programs. This includes 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. On Dec. 21, Congress passed a short-term funding deal, which also averted the PAYGO cuts.

Medical Expense Tax Deduction: Current tax law allows filers who itemize deductions to deduct medical expenses that exceed 10 percent of income. The bill retains this itemized deduction and temporarily lowers it to 7.5 percent of adjusted gross income (AGI) for 2017 and 2018. The threshold returns to its current 10 percent in 2019 and thereafter. Notably, 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).

Executive Compensation Excise Tax: The bill imposes a 21 percent 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.

Orphan Drug Research Credit: Currently, companies can claim a 50 percent 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 percent of qualified clinical testing expenses effective in 2018.

Excise Tax Based on Net Investment Income of Private Colleges and Some Academic Medical Centers: Effective 2018, the bill imposes an excise tax of 1.4 percent on net investment income from endowments of private colleges and educational institutions with at least 500 students and non-exempt use assets with a value at the close of the preceding year of at least $500,000 per full-time student. This would affect some academic medical centers.

Employer Credit for Paid Family and Medical Leave: The law creates a new section in the tax code, Employer Credit for Paid Family and Medical Leave, that allows eligible employers to claim a credit equal to 12.5 percent of the amount of wages paid to qualifying employees during any period in which such employees are on family and medical leave (FMLA) if the rate of payment under the program is 50 percent of the wages normally paid to an employee. The credit is increased by 0.25 percentage points (but not above 25 percent) for each percentage point by which the rate of payment exceeds 50 percent.

Tax on Foreign Income U.S. Companies Generate from Intellectual Property: The bill will implement a 12.5 percent tax on income that U.S. companies generate from intellectual property, regardless of whether that property is housed in the United States or in another country. This tax is aimed at drugmakers that register their patents abroad in order to avoid paying U.S. taxes.

Private Activity Bonds: The bill maintains the individual tax exemption for interest earned on private activity bonds that are issued by or on behalf of local/state government to finance certain non- governmental projects. Repeal of the exemption would have raised borrowing costs for projects involving not-for-profit organizations, including investments in new construction, renovations and new technologies.

Advanced Refunding Bonds: The bill, effective in 2018, eliminates the use of advanced refunding bonds, which currently allow governments to refinance debt at a time of their choosing to take advantage of lower market interest rates. These bonds can also reduce costs for hospital borrowing.

Fringe Benefit Deductions and Exclusions: The bill makes some changes to which fringe benefits can be deducted as a business expense. The bill amends Section 274 of the Tax Code to provide that deductions are not allowed for "(1) an activity generally considered to be entertainment, amusement or recreation, (2) membership dues with respect to any club organized for business, pleasure, recreation or other social purposes, or (3) a facility or portion thereof used in connection with any of the above items."

Tax Treatment of Reduced Tuition for Graduate Students and Reductions Provided by Educational Institutions to Their Employees: Under current law, the value of tuition reductions provided to graduate students who teach or conduct research are not considered to be income. Medical schools and academic health centers pushed for preserving this approach, which makes graduate medical study more affordable. Changes proposed by the House were not included in the final bill. Similarly, the bill does not change the non-taxable status of tuition reductions provided by educational institutions to their employees and employee family members.

Unrelated Business Income Tax (UBIT): The bill would prohibit combining various activities subject to UBIT for tax purposes, so organizations can no longer offset gains from one line of business with losses from another line of business. Each business activity would be taxed separately. The provision is effective for taxable years beginning after Dec. 31, 2017, although a special transition rule permits operating losses arising in a taxable year beginning before Jan. 1, 2018, to be carried forward.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions