Guest Post: Proposed Medical Reform

Here’s a guest post from Kyle at HENDERSON HUTCHERSON & MCCULLOUGH. Kyle joined HHM full-time in 2007 after spending a year as an intern. He was a Provost Scholar in the undergraduate accounting program at UTC and is currently enrolled in the MBA program.

We have all heard about the Health Care Reform that the President and Congress are trying to work out. Well on June 9th the Joint Committee on taxation released a preliminary plan on outline how they plan to raise revenue over the ten years to fund this new reform. Basically, it is a plan to take away tax deductions from individuals and businesses that have been allowed in years past. There are two items listed in the plan that will have a direct affect on individuals who incur substantial medical bills or participate in a Flexible Spending Account or Health Reimbursement Account.

In years past individuals that itemize their 1040 have been able to deduct any medical expenses not cover by insurance up to 7.5% of their Adjusted Gross Income. Few people probably spend this much, but people with serious medical conditions can spend that pretty easily. This new reform does not prose any change to this at all. It simply plans to repeal it leaving people no deduction for excessive medical expenses.

Another item that would affect individuals is the proposal to eliminate income tax exclusion for healthcare expenses paid through Flexible Spending Accounts (FSAs) and Health Reimbursement Accounts (HRAs). FSAs and HRAs are a tax advantaged financial account that can be set up with an employer through a cafeteria plan. Basically, it is money that can be set aside from wages to pay for health expenses. Wages that are deducted to be put into an FSA or an HRA are not subject to payroll taxes, therefore they can provide a pretty significant tax advantage to individuals that want to participate in these plans.

Overall, these things mentioned above will affect people that spend significant amounts on health care expenses each year. This is probably a small percentage of the population, but these people typically need all the financial support they can get. As mentioned above, this is just a proposal congress has made, but it shows their thoughts on how they plan on funding this healthcare reform that will most likely be proposed in the near future.