GOP tax deal expected to preserve medical expense deduction
As GOP lawmakers rush to reconcile the House and Senate versions of their tax bills, they've agreed to preserve the medical expense deduction, according to reports from NPR. The deduction will provide tax relief to an estimated million California households.
Washington lawmakers are reportedly considering using the Senate plan that would preserve a deduction for people who spend more than 10 percent of their adjusted gross income on out-of-pocket health costs. Senators also considered lowering that threshold to 7.5 percent for the first two years.
"The medical expense deduction is interesting, because it’s one of those deductions that you don’t really know much about until you need it,” said Scott Graves, director of research for the California Budget and Policy Center. “It really provides modest relief to families who are facing extremely high medical costs that aren’t being reimbursed by a health insurer."
Families can deduct the cost of skilled nursing care or large expenses from multiple hospitalizations.
Jennifer Page uses the deduction to help with the costs of multiple heart surgeries for her son, Max, who was born with a heart defect.
"Max doesn't require a lot of extra services," said Page. "He doesn't need some of the wheelchairs, the home health [care] that some of these other diagnoses [need], but his procedures are very expensive, and his hospital stays are very expensive when he does have them."
Depending on the surgeries Max undergoes during the year, Page said the family's out-of-pocket expenses can range between $20,000 and $50,000.
But Page says when your child is in a medical crisis, the only thing on your mind is their health.
"It just becomes about life and death, but after a few days, when everything gets settled and stabilized, you start [going], 'How in the world are we going to pay for this?'"
In 2016, the Pages were able to save thousands of dollars in income taxes because of the medical expense deduction – that savings helped offset the cost of Max's medical care.
California also provides a state income tax deduction for out-of-pocket medical and dental costs above 7.5 percent of gross income. In 2015, more than 1,025,000 households took that deduction for more than $10.5 million in medical expenses.
Experts estimate about a million families in the state take the federal deduction.
Sherri Brady says it's hit or miss whether she qualifies for the deduction in any given year. She cares for her 20-year-old daughter, Lauren, who has Rett syndrome.
The neurodevelopmental disorder causes seizures and means Lauren has trouble walking, standing and eating.
"We really need all of the help we can get," said Brady, who qualifies for the deduction in only some years.
Brady sometimes uses it to deduct the costs of big ticket items, specialized equipment that helps with communication, or when her insurance only covered the cost of a new wheelchair every five years.
"We just hope and pray it will last for the next five years," she said. "We're not trying to get our kids the latest and greatest (Air) Jordan's or dirt bikes."
"Our kids are getting specialized beds for Christmas," said Brady. "That's our splurge."
Yvette Baptiste, executive director of the Eastern Los Angeles Family Resource Center, works with families with kids with a range of fragile health conditions.
Baptiste worries about long-term consequences to health care in the tax bill.
NPR reports the most recent version of the tax plan upholds the Senate plan to repeal the penalty for not carrying health insurance. The individual mandate is considered the central thread that keeps premiums affordable under Obamacare. Without that mandate, health experts fear premiums will rise as younger, healthier people will forgo insurance.
The Senate plan was also estimated to add more than a trillion dollars to the deficit. Health advocates have raised alarms over automatic cuts to Medicare and Medicaid from so-called, paygo or pay-as-you-go rules.
"All of those supports are falling away," said Baptiste. "If policymakers don't change their strategy, families would lose decades of progress of being able to care for their children in their homes and in their community."