The Tolbert Report

With much fanfare, the Senate Democrats unveiled their long awaited health care reform bill last night. Weighing in at 2,074 pages, I have obviously not digested the whole thing but one part of it jumped out at my CPA brain while skimming it last night.

If passed Section 9013, Modification of Itemized Deduction for Medical Expenses will raise the floor for medical deductions from 7.5% to 10% of Adjusted Gross Income (AGI.) For those of you that don’t speak accounting, an individual can take a deduction for qualifying medical expenses on their tax returns after first meeting a set threshold called a “floor,” which is currently set at 7.5% of AGI. Without getting into the details of how AGI is calculated, let’s say your family will make $50,000 this year in income. That means the first $3,750 of medical expense are not deductible but everything over that is. In this example under the proposed health care reform bill, you would not be able to deduct medical expenses until you had first spent $5,000.

It baffles me how a bill which purports to make health care more affordable for Americans would make it more difficult for them to take a tax deduction for their medical expenses. If the goal is really to help Americans pay for health care, Congress should be doing the opposite of this by lowering or even eliminating the floor altogether. Imagine how much simpler it would be for you to make decisions on your medical expenses if all these expenses were tax deductible without having to go through your employer or mess with a cafeteria plan for reimbursements.

Perhaps Section 9013 is part of eliminating “inefficiencies in the tax code” as Sen. Blanche Lincoln discussed. I think this provision really goes to the heart of the purpose of this bill. The rising cost of health care is a real problem for Americans however this bill will not help most Americans with this. Instead, it will push more Americans to join the growing list of people dependant on government entitlements. On the other hand, reducing or eliminating the 7.5% floor provision on medical expense deductions would empower individuals to make the best health care decisions for them.