The GOP Tax Plan’s Effect on Medicaid Planning

Tax Plan and Medicaid PlanningThe Republican Party, also known as the GOP, recently proposed a tax plan which, if enacted, would repeal certain deductions. As of now, nothing is permanent, but, should the plan pass the Senate, medical expense deductions will be eliminated, adversely impacting the elderly and disabled by negatively affecting (increasing) the costs associated with long-term care needs. This would result in the financial instability of the elderly, the disabled and others relying on these deductions to support themselves and their families.

Medical Deductions and the Role They Play

According to the IRS, the Internal Revenue Service, taxpayers can currently only deduct medical expenses if the expenses and the income taxes sum to a value which exceeds ten percent of adjusted gross income (AGI). AGI is calculated by subtracting a person’s deductions from their total gross income. Specifically, these deductions can be health insurance premiums, home health care costs and even assisted living fees. Nursing home fees, which are considered deductibles if a doctor certifies that the individual must live in the facility due to health care and cognitive needs, can also be affected because of these deductions.

For the majority of taxpayers, this new plan may not be an issue, as the majority does not have income tax expenses that surpass ten percent of their AGI. Nevertheless, those who do will find themselves facing a new financial burden. In 2015 alone, 8.8 million households, almost six percent of tax filers, claimed medical deductions. The AARP believes that 74% of the people who participate in these deductions are at least 50 years old, and 50% of these people have incomes of $50,000 or below. Until 2017, individuals over the age of 65 were able to deduct medical expenses if they made up 7.5% of their AGI instead of 10%, so their expenses, relative to 2016, will increase even more dramatically.

These deductions are beneficial to the elderly and disabled, but they also provide a financial cushion for their families. If an elderly individual is unable to pay their taxes, their child may pay for them instead and receive assistance via the deductions as a result. Without the ability to deduct the expenses, the child will have to pay the entirety of the taxes if they decide to help the parent in need.

The purpose of these deductions is to provide a sense of monetary security to the taxpayer. If these medical expense deductions are no longer accepted, many families will run out of funds and will be forced to apply for Medicaid. For some, this will be an immediate course of action, while others will find themselves turning to the government aid program after a given amount of time.


Furthermore, the removal of the medical expense deductions is not the only downfall. An indirect result may cut from a seemingly unrelated provision in the tax plan – the corporate tax rate cut. The proponents of the tax bill proclaim that this tax change will create higher economic growth, resulting in higher tax revenue. Nevertheless, if the economic growth is insufficient to make up for the direct loss of revenue from the tax cut, the reduction in tax revenues will most likely cause sharp cuts in government spending or a rise in the budget deficit, potentially both.

The negative outcomes that happen because of this would put a disproportionately high strain on senior citizens and the disabled. With a reduction, there will likely be cuts to Medicaid, Medicare, Section 8, Meals on Wheels, and food stamps. According to the Centers for Disease Control, about 40 percent of individuals have high deductible health plans, which can cost a family as much as $13,000 in the event of a major illness.

Additional Medicaid Alterations

The Trump Administration has passed a provision allowing states to demand proof of work from all applicants applying for Medicaid coverage. An individual must work or participate in community engagement activities as proof to receive health care coverage. If this new tax plan proposal becomes a law, it will be more difficult for the elderly and disabled to apply for Medicaid, as, if unemployed, they will have to take extra steps to prove that they should be exempt from this provision.

An upcoming proposal seeks to cut money from funding for the benefit of the wealthy. The GOP budget would have to cut about five trillion dollars in spending in the next ten years if they want this change to be effective.  One trillion of these five trillion dollars would derive from the Medicaid funds. This is extremely hurtful to Medicaid employees, customers, and those wanting to join Medicaid. In fact, according to 60% of people in nursing homes are covered by Medicaid.

With fewer funds it would be more difficult to apply because Medicaid would not have enough financial stability to give medical coverage to everyone in need. The eligibility standards would become stricter, refusing coverage to individuals in need who may be covered under today’s guidelines.

As these changes begin to be implemented, the importance of Medicaid planning only increases. As it becomes harder to apply for coverage, an experienced Medicaid planning attorney becomes an invaluable resource in securing the funds families in need, especially those with elderly and disabled members, require.