Effects of Tax Cuts and Jobs Act on Obamacare

2038 words (8 pages) Essay in Health Law

05/08/19 Health Law Reference this

Last modified: 05/08/19 Author: Law student

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Introduction:

With the transition from a democratic president (Barack Obama) to a republican president (Donald Trump), there have been multiple changes taking place across the U.S., one of the most infamous being the change in taxes and modification of healthcare costs. In this paper, the effects of Tax Cuts and Jobs Acts passed by Donald Trump will be discussed, along with the effects it has had on Obamacare and how such actions lead to the modification of Obamacare.

Tax Cuts and Jobs Act (TCJA)

Individual income taxes are the biggest form of revenue for the Federal Government. In 2015, more than 150 individuals filed for their income tax returns. A filing consists of a household adding up its income and subtracting various deductions, (which allows taxpayers to reduce the amount of income that is subject to the tax), exemptions, and credit in order to report their tax liability to the Internal Revenue Service (IRS). The foundation of an individual’s income tax is adjusted gross income (AGI). The AGI is calculated by adding all sources of income to obtain their ‘total income’. From there, the individual will determine their exclusions, deductions, and credits which will narrow the tax base.

Before the enactment of TCJA, the federal tax code included three major provisions that reduced households’ income taxes in proportion to the number of household members: the standard deduction, the child tax credit, and the personal exemption (Muresianu & York, 2018). The Tax Cuts and Jobs Act was passed in December 2017 and made several significant changes to individual tax income. These changes include a nearly doubled standard deduction, new limitations on itemized deductions, reduced income tax rates, and reforms to several other provisions. In all, these changes simplify the individual income tax by eliminating the need for millions of households to itemize their deductions. Additionally, the TCJA included reforms to the Alternative Minimum Tax (AMT), an expanded standard deduction and child tax credit, and lower marginal tax rates across brackets.

Effect of the TCJA

The TCJA simplified the tax code by making it more advantageous for many filers to take the standard deduction, instead of itemized deductions. The standard deduction is doubled than what the itemized deductions were, therefore making it more attractive to use the standard deduction. Since the TCJA has greatly reduced the complication of filing for itemized deductions, there will be a higher percentage of individuals who will be taking advantage of the standard deduction due to the increase and convenience factor.

Another positive effect of the TCJA is raising the threshold for the Alternative Minimum Tax. The AMT was originally meant to prevent wealthy taxpayers from using “tax loopholes” to avoid paying taxes (Thienel Law, 2018). Since the AMT was not automatically adjusted for inflation, the tax codes before TCJA would greatly apply the AMT to middle class families. According to the IRS Taxpayers Advocate Service, filers who face the AMT spend almost twice as long complying with the tax code than filers who do not face the AMT. TCJA will fix this issue by increasing the income threshold, thus, only 200,00 individuals owe the AMT versus 4.5 million. The decline in AMT filer’s converts to approximately 135 million hours/ $4.6 billion saved.

Although the TCJA can increase efficiency in filing for taxes and possibly save millions of hours and billions of dollars in the near future, it will have some negative impacts on the healthcare aspect amongst the nation.

Effects of TCJA on Obamacare

The individual mandate requires individuals to obtain minimally adequate health insurance for themselves and their dependents. Those who fail to do so are required to pay a tax penalty to the IRS. Starting in 2019, the TCJA will eliminate this penalty; therefore, those who not obtain health insurance will not have to pay a penalty. However, this can also be looked at as an incentive being lost for individuals to get health insurances. With more individuals opting out of health insurances due to the repeal on Obamacare tax, an effect of the TCJA would be that the national health care costs would rise.

The Congressional Budget Office estimated that 13 million would drop coverage because of this repeal; therefore, health care costs will rise since fewer people will be paying premiums. When thinking about this issue long-term wise, Removal of the mandate means fewer people will get preventive care or treatment for chronic diseases, which will then lead to worsen health care inequality as a nation (Amadeo, 2018).

Executive Order to Modify Obamacare

In attempts to complete his vow of dismantling Obamacare, Trump signed an executive order in October 2017 in order to modify Obamacare in five ways. The executive order is meant to task the administration with policies to increase health care competition along with individual’s choice in order to improve the quality of health care and lower prices.

Five Ways the Executive Order will Modify Obamacare

The first action requests the Secretary of Labor to expand the access to association health plans. These are policies made available to small business, trade groups, and other associations. The order also expanded the types of groups that can form these health plans. These groups can range from small business owners, their employees, sole proprietors, other self-employed people, etc. In addition, it will be prohibited to refuse coverage or charge more to those with pre-existing conditions and it will allow people on association health plans to buy policies in other states.

Secondly, the order requests the Labor Secretary to ease restrictions on short-term health plans. Under Obamacare, short-term health plans had a 90-day cap whereas Trump wants them to last up to 12 months. Thirdly, it is requested that the Labor Secretary will allow employers to use pretax dollars for ‘health reimbursement arrangements’. Under Obamacare, workers could only pay for health policies that met its rules but with this modification, workers will be able to pay for any medical expenses. Fourthly, the order will commission a study to find ways to limit consolidation within the insurance hospital industries. Lastly, the order will direct agencies to find additional means to increase competition and choice in healthcare.

In addition to the five modifications, Trump also promised to lower prescription drug costs.  Trump had accused the world of freeloading and accused the drug manufacturers of charging more in the U.S.  In May 2018, Trump revealed the ‘American Patients First’ Plan, which consisted of a list of policy ideas such as increasing competition, better negotiation, creating incentives to lower list prices. Under this plan, the government would limit the amount paid for drugs based on cheaper prices paid by other nations. The changes would apply mainly towards drugs prescribed by a physician, for example cancer medication. 

The America Patients First Plan will also have a negative effect to the nation as a whole. The current system reimburses doctors for drugs prescribed along with a percentage free. However, under this new plan, doctors will not make more or less money based off the medications/drugs they prescribe. This could eliminate the incentive for doctors to choose a more expensive drug, therefore, possibly negatively affecting the patients and their health.

The effects of this Executive Order

As mentioned previously, the first modification of the order will allow people of association health plans to buy policies in other states. However, each state has specific regulations, making it costly for national insurance companies to operate in different states. As a result, five companies serve half of the insured population. Ideally, increased competition should reduce the companies’ monopoly power and lower cost; however, the executive order might do the opposite. The big companies are the only ones with the power to operate across state lines under the current policy (Amadeo, 2018). If it becomes easier for them, they will raise their prices. In addition, the new policies will not be closely regulation since the administration would exempt them from the ACA rules and state licenses. Therefore, the State is given authority to manage Medicaid funds without federal mandates, which was not allowed under Obamacare.

In addition, the gap shirt in short-term health plans can be a possible outlet for health individuals that want to opt out of health insurance, and resort to short-term health plans for a year. Although it will cost less, it will not offer all 10 ACA benefits as before. Therefore, it will once again raise the overall healthcare costs.

Conclusion

Although there are a few positive factors for both actions discussed in the paper, I personally do not agree with anything Trump is pushing towards: Tax Cuts nor Jobs Act, the executive order to modify Obamacare, nor the American Patients First Plan.

As mentioned previously, both will result in a rise in healthcare costs. The TCJA act is ‘luring’ healthy individuals to opt out of health insurance overall, which will result in other individuals with health insurances to pay more. As healthy individuals are leaving health care plans, the healthcare companies will raise their prices in order to remain profitable. ACA was stabilizing the market; however, this executive order has caused a rise in the market. This domino effect will negatively affect the nation. Additionally, although Trump has not repealed Obamacare, the modifications have ‘wounded’ Obamacare and removed many critical matters, for example giving individuals a longer cap on the short-term plan but taking away benefits from the short-term plan. These modifications are not meant to benefit and protect the individuals of the nation, but to benefit the government in any way possible.

I would definitely keep the tax penalty as an incentive for individuals to have healthcare insurance in order to stabilize the healthcare market. The TCJA will benefit the economy in the near term; however, it will have minimum impact on the GDP and GNP of U.S. An alternative would be to tax old capital, capital that is already committed, and provide incentives for purchasing new investment, by financing lower rates of wages and new investment, such as implementation of consumption tax).

Secondly, I do not see how the American Patients First Plan will benefit the entirety of U.S. patients. Trump is trying to reduce medication price according to other countries. However, multiple various factors go into the pricing of medication such as healthcare costs, economy, drug pricing, etc. If Trump continues with the TCJA and ACA modifications, it will create a negative domino effect, which will brutally influence the American Patients First plan towards the U.S. population.

In addition, as an alternative for the American Patients First Plan, I would resort to a part of the Federal Law, Section 1498, which allows the government to overcome patent protections, as long as the patent holder is fairly compensated. When comparing this law to pharmaceuticals, the FDA or Health & Human Services can authorize drug makers to produce lower cost generics, which can then be bought in bulk in order for physicians to still have an incentive to prescribe the proper medication needed for patients for the betterment of the U.S. community.

In conclusion, there can be alternatives to Trump’s actions, which are only beneficial for short-term purposes but will negatively impact the nation in the long-run.

References

  • Muresianu, A. and York, E. (August 7, 2018). The Tax Cuts and Jobs Act Simplified the Tax       Filing Process for Millions of Households. Retrieved from: https://taxfoundation.org/the-tax-cuts-and-jobs-act-simplified-the-tax-filing-process-for-millions-of-households/
  • Thienel Law. (January 3, 2018). Retrieved from: https://www.thienel-law.com/blog/2018/01/03/pros-and-cons-of-the-tax-cuts-and-jobs-act
  • Amadeo, K. (November 6, 2018). Retrieved from: https://www.thebalance.com/how-could-trump-change-health-care-in-america-4111422
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