A $10 billion provision in the House tax plan is really bugging the AARP --  and one expert thinks that's enough to kill it

  • The House Republican tax reform bill includes the repeal of an itemized deduction related to medical expenses, a measure that costs the federal government $US10 billion.
  • The repeal, which is in the Senate version of the bill, would impact people who spend heavily on certain healthcare expenses like long-term care or fertility treatments.
  • The AARP isn’t happy with the plan’s removal of the deduction, calling it a “health tax,” and experts don’t expect it to make it to the final bill.

“Never bet against the AARP,” says Craig Garthwaite, a professor of strategy at the Kellogg School of Management at Northwestern University, told Business Insider.

He’s talking about a provision in the House Republicans‘ tax plan that would repeal of an itemized deduction that applies to healthcare expenses.

Cutting that deduction would hit people with high medical costs — those with chronic conditions that require medical devices and other expensive equipment — hard. At the same time, it would only save the federal government about $US10 billion, not much in the scheme of the trillions in annual government spending.

In particular, this will impact people whose expenses aren’t covered by traditional health insurance, such as those who need long-term care.

AARP — which lobbies for retirees and the elderly and was one of the top 50 lobbying spenders in 2016, spending more than $US8 million, according to The Hill — is calling this a “health tax.”

“The House tax bill repeals the medical expense deduction, resulting in a health tax for taxpayers who get sick or have chronic conditions,” AARP executive vice president Nancy LeaMond said in a statement. “As Congress continues its consideration of tax legislation, we continue to urge the House and Senate to work in a bipartisan manner to maintain tax incentives that promote retirement savings, retirement security and help offset the high out-of-pocket health care costs of older Americans.”

The repeal of the medical expense deduction only shows up in the House bill, not the Senate’s, so it remains to be seen if the change will end up in the final Republican plan.

Garthwaite said he doesn’t expect the provision to survive.

What removing the deduction would mean

Under the current tax law, individuals who spend over 10% of their income on medical expenses are allowed to deduct part of those costs from their taxes. The proposed new bill would remove that deduction.

So say your income in a year is $US60,000, and you have $US20,000 worth of medical expenses. That would mean that you’d have a taxable income of $US46,000.

But, Garthwaite said, fewer people might be exposed to this deduction going away than they might have before the Affordable Care Act put an end to lifetime insurance caps. For the most part, it will be people in need of long-term healthcare, such as nursing homes or home care, or people with healthcare expenses that go beyond the scope of their health plans.

But for those with those kinds of expenses, the removal of the deduction could be extreme.

“To go after this is a gut punch,” Adrienne Lynch, a woman going through in-vitro fertilization, told The New York Times. Lynch has spent more than $US43,000 on IVF, she told The Times, lowering her taxable income by $US20,000.

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