Last week, a draft of an old Affordable Care Act repeal bill was leaked. This set in motion a bit of a scramble among House and Senate Republicans on the details of the repeal and replace bill. This week, Republican leadership assuaged concerns, saying that this was an old draft. However, Republicans continue to express frustration that the bill is being drafted without broad input from the Republican caucus.
Some of the most contentious elements among the caucus include: the use of federal income tax credits vs. tax deductions when subsidizing the cost of buying commercial health insurance, and changes to state Medicaid funding. Coverage benefits and preventive services also continue to be on ACG’s radar screen, with the College continuing to advocate for these coverage protections.
Tax Credit vs. Tax Deduction
The most recent ACA repeal draft, as well as others, include providing individuals an advanced or refundable tax credit to help pay for the cost of commercial insurance. Many Republicans are opposed to this because they believe this is simply an indirect entitlement program. During his first address to Congress on Tuesday evening, President Donald Trump stated that he supports tax credits. So what’s the basic difference between a tax deduction and tax credit?
According to the Internal Revenue Service (IRS), both tax credits and tax deductions offer various benefits and ways to reduce the amount of tax that you owe to the IRS. The main difference is that tax deductions are subtracted from your gross income, while tax credits are subtracted directly from the amount you owe in taxes. A tax credit is always worth more than a dollar-equivalent tax deduction. For example, a $1,000 tax credit saves you $1,000. On the other hand, tax deductions lower your taxable income and they are equal to the percentage of your marginal tax bracket. Using the same example, if you are in the 25% federal income tax bracket, a $1,000 deduction saves you $250 in tax liability (0.25 x $1,000 = $250). A refundable tax credit means that you would not lose an excess credit owed to you in that year, should the costs of insurance be lower than the tax credit.
Under the ACA, the Federal Government is scheduled to pay 95% of Medicaid expansion costs, with payments phasing down to 90% by 2020 and beyond. The leaked Republican draft eliminated the Medicaid expansion funds in 2020. However, there are reports showing that any new draft may continue to fund indefinitely enhanced federal matching rates for people currently enrolled under the Medicaid expansion. However, a number of Republican state governors who chose not to expand Medicaid under the ACA have voiced concerns about now being penalized under any potential new plan to maintain federal matching rate at 90% in 2020 and beyond.
Seema Verma Confirmation
President Trump’s nominee for to lead the Centers for Medicare and Medicaid Services (CMS), Seema Verma, moved forward this week. The U.S. Senate Finance Committee on Thursday approved the nomination in a party-line 13-12 vote.
Whitfield L. Knapple, MD, FACG
Chair, ACG National Affairs Committee