Why the Medical Expenses Deduction Matters

Last week House Republicans proposed eliminating the current deduction for medical expenses not compensated by insurance. The criteria for this deduction have varied widely since it was adopted in 1942, but so far it has always survived the chopping block. The IRS reports that approximately 8.8 million households took this deduction in 2015.

Under the current code, taxpayers may deduct many medical expenses after they have spent 10 percent of their income on healthcare costs. This income floor means that this deduction substantially benefits the middle class. In fact, the largest percentage of these claimants have an annual income of $50,000 to $100,000, according to the IRS. The AARP reports that in 2013, 56 percent of taxpayers who took the medical expense deduction were over 65, and 51 percent of those individuals had an annual income under $50,000.

High medical costs occur for many reasons, not just chronic illness. The following groups are the most likely to see significant financial hardship should the deduction be eliminated:

  • The disabled—Health insurance does not always cover the costs for the disabled person, such as therapy treatments, prosthetics, the more expensive medications, and service animals.
  • Those experiencing catastrophic illness—Unreimbursed expenses for illnesses that require extended hospitalization or recovery (such as coma, heart attack, or stroke) would no longer be deductible.
  • Individuals with high health insurance deductibles—The CDC estimates that nearly 40 percent of individuals have high-deductible insurance plans, which can cost as much as $13,000.
  • Older Americans—Unreimbursed home care costs; assisted living expenses; dental, vision and hearing costs; and policy premiums and copays would no longer be deductible. According to the AARP, the average Medicare beneficiary spends over $6,000 a year on out of pocket healthcare costs.

Of course, the House tax proposal is not the final version of the bill. The Senate has yet to announce its proposal, and the two plans must be reconciled, passed and then signed into law. Whether the medical expense deduction will continue to woven into our national health safety net is still an open question.

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