On Medicare

Tax bill may change your clients' health-care costs

Pay attention to new rules for the "individual mandate" requirement and the medical expense deduction floor

Dec 29, 2017 @ 10:45 am

By Katy Votava

The newly signed Tax Cuts and Jobs Act will affect how much your clients pay out of pocket on health care, in several ways. The effects will be both short term and medium term:

• The "Individual Mandate" will be eliminated by Jan. 1, 2019.

• There is a temporary reduction in the medical expense deduction floor, from 10% to 7.5% for 2017 and 2018.

The Individual Mandate is eliminated by Jan. 1, 2019. Regardless, the Individual Mandate requirement is in effect for 2017 and 2018. During that time, all tax payers, other than those who are exempt from the health insurance requirement, must have minimum essential health insurance coverage.

Folks who do not maintain that type of coverage are obligated to pay the "shared responsibility payment," otherwise known as the penalty. The 2017 "shared responsibility payment" is 2.5% of yearly household income or $695 per uncovered person, whichever is higher.

That penalty is figured into the 2017 tax return. Healthcare.gov has more detailed penalty information. The Kaiser Foundation's online calculator is useful to estimate "shared responsibility payment" amounts.

(More: Affluent Americans inundate accountants for advice)

Another other short-term impact of this new legislation is a temporary reduction in the medical expense deduction floor. The floor, which was scheduled to be 10% in 2017, will now be 7.5% for 2017 and 2018. That threshold returns to 10% in 2019. Each dollar spent on health care beyond the 7.5% threshold is discounted at the person's tax rate and reduces their tax burden.


The impact of this change will affect people who may not anticipate it. Most of us tend to think of people who can take a "medical deduction" as being quite ill, requiring many medications, and other health-care services. Increasingly, due to high-price health premiums for individuals, small businesses and sole proprietors, there are many more folks who will exceed the medical deduction 7.5% threshold in 2017 and 2018.

IRS Publication 502 (2017), Medical and Dental Expenses, includes a wide array of health-care goods and services that are eligible as "medical deductions." Beyond medical services, premiums and dental care, unexpected services — such as lead-paint abatement — may be included.


It is ever more important to incorporate tax advice into personal financial services. Whether the adviser provides tax advice or establishes solid working relationships with tax advisers, doing so can generate tremendous value for clients.

Even if you don't provide tax services you can share this information with your clients as they prepare their 2017 tax return documentation. Below is the annual and monthly breakdown of the 7.5% medical deduction floor at various income levels for 2017 and 2018. I provide the monthly floor as a point of reference. The law does not require monthly expense amounts, but many people find it helpful to think in such terms.

(More: HSAs next cash cow for 401(k) plan advisers: expert)

For adjusted gross income (AGI) of $50,000 the annual floor is $3,750 and the monthly floor would be $313. For AGI of $100,000 the annual floor is $7,500 and the monthly floor would be $626. For AGI of $150,000 the annual floor is $11,250 and the monthly floor would be $938. For AGI of $200,000 the annual floor is $15,000 and the monthly floor would be $1,251. For AGI of $250,000 the annual floor is $18,750 and the monthly floor would be $1,564. For AGI of $300,000 the annual floor is $22,500 and the monthly floor would be $1,877.


The medium-term effect of the Tax Cuts and Jobs Act will be magnified by anticipated net federal tax revenue losses. There will be increasing pressure to deal with cost escalations of all governmental expenditures including health-care spending on Medicare, Medicaid, military and veterans' health care as well as federal employee and retiree health care.

The strain of these costs has been building for years. Rather like the proverbial pressure cooker, many wonder when that pressure will reach an eruption point that leads to major changes. I don't have a crystal ball with an answer. As I always say, stay tuned . . .

Katy Votava, Ph.D., R.N., is president of Goodcare.com, a consulting service that works with financial advisers and consumers on health-care coverage.


What do you think?

View comments

Recommended for you

Sponsored financial news

Upcoming Event

May 02


Women Adviser Summit

The InvestmentNews Women Adviser Summit, a one-day workshop now held in four cities due to popular demand, is uniquely designed for the sophisticated female adviser who wants to take her personal and professional self to the next level.... Learn more

Featured video


Top questions surrounding future of DOL fiduciary rule

Reporter Greg Iacurci and managing editor Christina Nelson discuss the biggest uncertainties springing from the Fifth Circuit Court of Appeals' decision to vacate the regulation.

Latest news & opinion

UBS reels in $30 billion J.P. Morgan team focused on Mexico

The five-member team will be based in Miami, Houston and New York.

Higher estate-tax exemption level could mean less work for advisers

With fewer taxpayers affected by the federal estate tax, the demand for estate planning is diminished.

Stocks plunge, advisers tell clients to hang tight

Though planners encourage calm, some are preparing investors for a correction.

Lightyear Capital's Donald Marron said to be in the hunt for Cetera Financial Group

The veteran brokerage executive, who bought Advisor Group in 2016, owned Cetera once before.

What to watch for next with the DOL fiduciary rule

Much hinges on whether the Labor Department appeals the 5th Circuit decision by April 30.


Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

Ad blocker detected. Please whitelist us or give premium a try.


Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print