In the early hours of Saturday, December 2, 2017, the Senate approved its version of tax reform legislation, S. 1, the Tax Cuts and Jobs Act, by a vote of 51-49. All Republican Senators except Senator Bob Corker (R-TN) supported the bill, while all Democratic Senators voted no on final passage. The next step in the legislative process is for the House and Senate to appoint conferees to resolve differences between the Senate bill and the House-passed tax bill, H.R. 1. Congressional Republican leaders hope to pass that conference agreement through both chambers of Congress, with the goal of having President Trump sign a bill into law by Christmas.
Fulfilling this goal will require the conference committee to tackle key differences in the Senate and House versions of their respective final tax bills that could significantly affect health care coverage and funding as well as the operations of charitable hospitals. One major difference between the two bills is that the Senate version effectively repeals the individual mandate to purchase health insurance under the Affordable Care Act, by reducing the penalty for not having insurance to $0, beginning January 1, 2019. The House version contains no comparable provision. The Congressional Budget Office (CBO) estimates that repeal of the individual mandate would save $338 billion over 10 years, would increase the number of uninsured individuals to 13 million by 2027, and would increase average premiums by 10% in most of the next 10 years.
Senator Susan Collins (R-ME) had earlier expressed concern about the repeal of the individual mandate absent any policy provisions to stabilize the individual market, but she supported final passage after receiving a commitment that the Senate will pass two bills following the Senate tax bill: the Alexander-Murray proposal to reinstate cost sharing reduction payments for two years and legislation she has co-authored with Senator Bill Nelson (D-FL) to fund invisible high-risk pools or reinsurance programs.
The conference committee will also need to reconcile differences in how the House and Senate bills treat charitable hospitals and other nonprofit organizations. For example, the House bill eliminates private activity bonds and applies the unrelated business income tax to certain fringe benefits and research activities. The Senate bill omits these items, but unlike the House, it would require charitable hospitals and other nonprofit organizations to calculate unrelated business income separately for each activity. Setting aside these differences, the final House and Senate bills agree on several provisions that would affect the day-to-day operations and governance of charitable hospitals if enacted, including terminating advance refunding bonds, imposing a 20 percent excise tax on certain compensation arrangements in excess of $1 million, creating a 1.4 percent excise tax on college endowments and limiting net operating losses to 90 percent of taxable income.
Opponents of the Senate tax bill have charged that the legislation’s deficit spending will result in substantial cuts to the Medicare program. Because the CBO and the Joint Committee on Taxation estimate that the Senate-passed tax legislation will increase the federal deficit by $1.4 trillion over 10 years, the bill will trigger “PAYGO” rules requiring a sequestration of federal budget resources to offset the additional spending. Specifically, the Statutory Pay-As-You-Go Act of 2010 (Public Law 111-139) requires the Office of Management and Budget to determine how such cuts will be carried out. While certain federal programs such as Social Security and Medicaid are exempt from any cuts entirely, PAYGO limits any reductions to Medicare to 4 percentage points, translating into about $25 billion per year. However, Congress can waive the PAYGO requirements, and yesterday, Senator Collins reported that she “got an ironclad commitment” that there will be no cuts in the Medicare program as a result of the tax legislation.
