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Sunday, February 08, 2015

CARE Act Battleground

The Republicans to date have not put forth an alternative to Obamacare. To fill this vacuum, Senator Richard Burr has put forth an alternative to Obamacare – the Patient Choice, Affordability, Responsibility, and Empowerment Act (the “CARE” Act). This proposed act is likely to be a battleground in the 2016 congressional and presidential races. If the Republicans should win majorities in both houses of Congress and the presidency, there is a reasonable likelihood that many of the provisions of this act, in some form, could find its way into law. The act would repeal Obamacare in its entirety, other than its Medicare provisions, and replace it.
Since this is a tax blog, let’s focus on key tax aspects of such a repeal and replacement, with a few minor comments. Items that would disappear if passed include:
  1. The individual insurance mandate and employer responsibility provisions, as well as the associated penalty tax provisions and refundable tax credit for lower income families to buy health insurance.
  2. The increased hospital insurance (HI) tax for high-earning workers and self-employed taxpayers.
  3. The 3.8% surtax on unearned income of higher-income individuals (good riddance – the unnecessary complexity of this tax borders on the absurd and makes me nauseous).
  4. The higher threshold for deducting medical expenses.
  5. The $2,500 dollar cap on contributions to health FSAs.
  6. The ban on the cost of over-the-counter medicines being reimbursed with excludible income through a health flexible spending arrangement (FSA), health reimbursement account (HRA), health savings account (HSA), or Archer MSA, unless the medicine is prescribed by a doctor.
  7. The $500,000 compensation deduction limit for health insurance issuers.
  8. The excise tax on medical device manufacturers (good riddance – taxing medical innovations of course leads only to less medical innovation).
  9. The excise tax on health insurance providers.
  10. The 40% nondeductible excise tax on high-cost employer-provided health insurance coverage.
What will come in for lower income persons is a tax credit to assist in purchase their own plans on the open market – an attempt to instill competition and free market benefits into medical insurance while still providing an insurance safety net.
Coverage for pre-existing medical conditions will continue – but ONLY if the insured has kept up at least catastrophic coverage for a period of time. That is, individuals are incentivized to buy at catastrophic coverage when healthy instead of waiting until they get a serious condition and then buying insurance.
Information on the CARE Act can be found HERE, which includes links to other summaries and a comparison to Obamacare.
Patient Choice, Affordability, Responsibility, and Empowerment Act

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