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Among several issues hanging in the balance as the House and Senate try to reconcile their versions of the Tax Cuts and Jobs Act is a deduction for medical expenses. The House version of the bill eliminates this tax break, which is used by people who incur significant health care costs, such as those with chronic medical conditions or senior citizens. But the Senate bill leaves it in place and temporarily lowers the threshold for claiming the deduction from 10% of adjusted gross income to 7.5%.
About 8.8 million households, or about 6% of tax filers, claim the medical expenses deduction — a relatively small number, but it can save thousands of dollars for those who use it to cover the costs of nursing homes, assisted living or inpatient hospital stays. During a recent segment on the Knowledge@Wharton show on Wharton Business Radio on SiriusXM channel 111, Wharton health care lecturer John Whitman, who is also executive director of the TRECS Institute, and Richard Kaplan, a professor at the University of Illinois at Urbana-Champaign, discussed what eliminating the tax break would mean for the elderly and others who depend on long-term care.
“From a senior citizen perspective, this could have very serious implications.”–John Whitman
“From a senior citizen perspective, this could have very serious implications,” Whitman said. He noted that many families use the deduction in order to afford caring for elderly relatives at home. “My fear is that this is going to raise the dollar implications of that so significantly that they will no longer be able to do that and will be forced to move those loved ones to nursing homes, which is going to then add to Medicaid because most of that would fall under Medicaid payments as opposed to private pay.”
The cost of a nursing home can run as high as $100,000 a year, and less than 10% of senior citizens have any private long-term care insurance, Kaplan pointed out. If the medical expenses deduction is eliminated, the additional expense will cause seniors and others with high long-term health care bills to run through their savings more quickly. “One of the bizarre consequences of this is that people will run through their resources faster and will ultimately end up on Medicaid,” Kaplan said. “What the federal government is seeing as revenue pickup on the tax side they may be expending a few years down the road on the Medicaid side. It’s not a complete wash because Medicaid is also funded substantially by state governments, so this is also going to create an indirect cost to state governments.”
The Knowledge@Wharton SiriusXM show airs Monday through Friday, 10 a.m. – 12 p.m. EST, on Wharton Business Radio on SiriusXM channel 111.