Senate Tax Bill Cuts Obamacare’s Individual Mandate


December 4, 2017

Early morning on Saturday, December 2, the Senate passed the largest tax reform bill in three decades. Known as the Tax Cuts and Jobs Act (TCJA), the bill lowers the tax burden on corporations by a significant amount – down to 20 percent over the current rate of 35 percent. The bill also recategorizes taxpayers into four tiers, effectively cutting taxes for millions of Americans. But the bill doesn’t just address taxation. Included in the Senate’s reform bill is a provision that would have a profound effect on the Affordable Care Act. Under the TCJA, the individual mandate – a key component of Obamacare – would be repealed.

The individual mandate requires most Americans to have health insurance or face a fine, levied by the IRS. In 2017, that fine is 2.5 percent of a household’s taxable income, or a flat fee per uninsured adult and child, whichever is higher.

The IRS reported that during the 2016 tax season, it collected $3 billion in penalty fees from about 6.5 million people who lacked health insurance. That averages to approximately $470 per person and represents a shift downward from the previous year. In 2014, around 8 million people owed the penalty fee.

President Trump has been pushing for tax reform and healthcare reform since his election, but lawmakers in Congress have been unable so far to agree on a healthcare bill after several failed attempts this summer. Repealing the individual mandate via a tax reform bill appears to be one final attempt before the end of the year to fulfill Republicans’ promise to upend Obamacare.

Despite the bill’s passage in the Senate, not every Republican is fully on board. Senator Susan Collins of Maine, a key holdout for healthcare reform efforts this year, insisted on two additional bills that would alleviate the burden of higher premiums if the individual mandate gets repealed. Collins also proposed an amendment to the tax bill that would save the medical expenses deduction and lower the threshold for claiming a medical exemption. Under current law, taxpayers can claim a deduction if medical expenses exceed 10 percent of their income. Collins’s amendment would lower this threshold to 7.5 percent.

The TCJA passed in the Senate, but the bill is not final. The House passed a tax reform bill on November 16, and the two bills will need to be reconciled before hitting President Trump’s desk for signature. Without the individual mandate in place, the Congressional Budget Office estimates that 13 million fewer people would have health insurance by 2027.