Tax Reform Proposal Could Make It Harder to Pay for Senior Living

Senior living providers, industry associations and residents are mobilizing against a provision of the recently introduced tax reform bill in the U.S. House of Representatives, saying this element of the legislation would increase the tax burden for residents and threaten their ability to remain in private-pay communities.

For over 70 years, the medical expense deduction has been part of the U.S. tax code. It would be eliminated under a comprehensive tax overhaul introduced last week in the U.S. House.

This would be a blow to many older adults with signifiant medical expenses, including many in senior living communities, says Jeanne McGlynn Delgado, vice president of government affairs for the American Seniors Housing Association (ASHA).


ASHA crunched numbers from the Internal Revenue Service and other sources, and found that of the 9 million people who usually take the medical interest deduction each year, 55% are 65 or older. They represent 68% of all deductions taken, in terms of dollars. Premiums for long-term care insurance, certain assisted living monthly expenses, and all monthly memory care rents and care fees are eligible to be deducted.

“People who are the most frail, with the most medical conditions and expenses, are going to get hit hardest by this,” Delgado tells Senior Housing News.

On Tuesday, ASHA and two other provider associations, Argentum and LeadingAge, together sent letters to leaders of both the House and Senate urging them to preserve the deduction.


ASHA also has encouraged member involvement and sent resources to its provider members, to help them contact and persuade their legislators in Washington, D.C., on this issue.

The Senate is expected to introduce its version of a tax reform bill on Thursday. It is unclear whether it will mirror the House bill in eliminating the medical expense deduction, according to Delgado. The House is aiming to bring the bill to a vote by Thanksgiving, with the Senate on a similar timetable.

An ongoing battle

While the House tax bill takes the battle to a new level, ASHA and other senior housing and care groups have been advocating for the medical expense deduction for several years already.

Historically, if people spent more than 7.5% of their adjusted annual income on medical expenses, those expenses could be deducted from their taxable income. Under the Affordable Care Act, that income threshold rose to 10%.

Seniors were initially exempted from that increase, but that exemption has expired—meaning seniors also will be subject to the 10% threshold when they file their 2017 taxes. However, two lawmakers—Ohio Sens. Rob Portman (R) and Sherrod Brown (D)—have introduced a bill to maintain the 7.5% threshold for seniors.

The sweeping tax proposal now under consideration in the House replaces this effort, Delgado says, since the argument is that the House tax plan would double the standard deduction that people can take to about $12,000, so proponents of the bill believe there will no longer be a need to itemize deductions. But ASHA and other groups believe this is not the case.

For instance, consider a memory care resident receiving $60,000 each year in income. Through a combination of this income and savings, this person could be paying $68,000 a year for care, based on industry averages, Delgado says. With the medical expense deduction in place, this resident has no tax burden. Under the House plan, the resident could take the $12,000 standard deduction but would then have to pay taxes on $48,000 in income, resulting in a tax bill of about $6,000 even at a lower tax rate.

Over time, this can eat into people’s savings and make them unable to afford private pay settings, forcing them onto the Medicaid rolls, Delgado says.

“The larger standard deduction may be helpful to seniors with limited medical expenses,” she says. “Our position is, for seniors with significant medical costs, repealing the deduction can be devastating.”

Click here to view ASHA’s letter to the House of Representatives.

Written by Tim Mullaney

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