Sunday, July 09, 2017

Health Care Reform - Tax-Based Changes

Part of the GOP is currently making a last ditch effort to get a repeal and replace healthcare bill passed, while some factions are insisting on a full repeal and others insist on keeping a great deal of Medicaid expansion in place.

While my family and I benefit from some provisions of the ACA, I cannot fully disagree with stepping away from Obamacare. Using the US tax code to help taxpayers cover their health care expenses seems to be a good place to make concessions that could make Trump-care more palatable.

Health Insurance Adjustment for ALL Taxpayers

In Donald Trump's campaign promises regarding health care, he mentioned making health insurance "fully deductible". Currently, the tax code allows for health insurance provided by employers and health insurance for the self employed as adjustments to gross income. However, anyone who is employed and buys health insurance on their own gets the 10% of adjusted gross income limit shaved off of their deduction. This is one example of a glaringly inequitable result in the tax system - especially under Obamacare. If health insurance is an adjustment from income for those who have employer provided coverage and for those that are self-employed - it should be an adjustment for all taxpayers.

Remove the 10% Limit For Certain Medical Expenses

When my boys were diagnosed with Autism, the most effective medical treatment for the disease was not covered by a vast majority of health insurance plans. The cost is high enough that it was impossible for families with incomes under 50,000 dollars to afford. These factor's led my wife and I to pursue her graduate education. We needed to raise our income in order to pay for these major expenses out of pocket.

Unfortunately, when you raise your income your raise your tax debt as well. While we have more money to pay for medical therapies, the IRS eats up a substantial portion without realistic allowances for additional financial costs associated with special needs children.

There are many situations where families that care for special needs or ill family members end up with a major tax bill that they cannot pay because medical expenses devour all available savings and investments. These people either get in deeper debt to pay the IRS, or they pay tax professionals (more debt) to help them request installment arrangements or request offers in compromise (offer's to settle tax debt for less than the amount owed).

If the 10% limitation was removed for catastrophic medical expenses (medical expenses from a single event that exceed 5,000 dollars or more) and medical expenses of the uninsurable chronically ill and/or disabled individuals, these families would be paying taxes on amounts that are more reflective of their actually financial position.

If we are going to get rid of Obamacare, let's provide some real incentives for people to be able to take care of their own medical issues. Taxing people on income with a health insurance adjustment would make health insurance a less painful expenditure. Allowing full medical deductions for those who have to pay medical expenses out of pocket, would make being self-sufficient a much easier pill to swallow for families with disabilities, pre-existing conditions, and other chronic medical problems.

Saturday, June 24, 2017

Health Care Reform

As we stand on the brink of the GOP repealing the ACA and replacing it with there own version, I am forced to grapple with the personal and societal impact of government involvement in health care. When Obama was elected, me and my family was relatively healthy, I considered myself far more conservative than I am now, and I believed that the ACA was something that would grow government to an unsustainable size. As the ACA is about to be repealed, my perspective has been broadened due to health issues of my children and my own health problems. However, I still see the problem of government health care - it increases the size of government and gives Uncle Sam more of a hand in your personal life. The biggest thing that the ACA has done for my family is requiring insurers (including Medicaid) to cover treatments for Autism like Applied Behavior Analysis (ABA). Conversely, the ACA has stretched the budgets of American families that have either paid more for health insurance than they need, or have incurred tax penalties because they did not comply with the ACA mandate. What is the optimal solution for allowing all American's the right to healthcare, or is it a even a right at all? The one thing that is patently clear is that unilateral reform initiatives will leave American's in limbo as power will continue to change hands every 4-8 years.

Tale of Two Brothers

To illustrate the difference of being with and without affordable coverage that covers all our healthcare needs, I would like share my sons' story.

I have two boys that are severely Autistic. Quinn was born in 2006, 4 years before the ACA was passed. Milo was born in 2009, 1 year before the ACA was passed. ABA has been the prescribed treatment for the entire period from Quinn's initial diagnosis in 2008. The problem then was that ABA was not covered by any insurance companies  and it cost more than 30,000 dollars per year. On salary of a Bachelor degreed accountant, that sum would take nearly 75% of my annual salary. In the meantime, I was diagnosed with an autoimmune disease that required a financially painful medication regimen and my second son was also diagnosed with Autism a few years later.

My wife and I decided to change our situation the best we could. Since my long-term health had come into question, we determined that we should invest in my wife's education with the intent that she can be the breadwinner. This took 6 years, but we sacrificed and got my wife through her masters degree. She is now the breadwinner with a good health insurance plan.

Luckily, a few things happened toward the tail end of her education. State law required insurance companies and court rulings related to the ACA required Medicaid to cover ABA. My boys finally started getting therapy in 2016. This is almost 8 years after Quinn was diagnosed, and 5 years after Milo was diagnosed.

Sadly, time is your enemy with Autism. The older a child gets, the more difficult it becomes to treat them with ABA. By the time my wife finished her education, Quinn was almost 10 years old and Milo was 7 years old. The ages 2 to 5 are the most impactful years for Autism treatment. 

The differences in the boys' progress is striking. 

Milo has improved immensely. He is able to participate in mainstream classes at school, makes some eye contact, speaks clearly, is a great problem solver, and can take care of almost all of his functional needs. 

Quinn has also improved as well, but his improvement has not been nearly as drastic. While he is now partially potty trained (a feat that I greatly appreciate) he is still very much trapped in his own world. He still doesn't speak clearly, he requires assistance with most of his functional needs, he makes no eye contact, and spends almost zero time in mainstream classes.

Autism treatment is most valuable at younger ages. From Autism Speaks:

In the study, researchers at The New England Center for Children enrolled 83 toddlers diagnosed with autism in the school’s Early Intensive Behavioral Intervention program. The program, based on the principles of Applied Behavior Analysis (ABA), provided 20 to 30 hours of one-on-one therapy each week. The children were between 1 and 3 years old at the time they began therapy....
While all age groups showed improvements, a much larger percentage of the youngest participants made significant gains in skills during the year of therapy.
* Among the toddlers who entered the therapy program before their second birthday, 90 percent (11 out of 12 children) made significant gains.
* This was true of 70 percent (26 of 36) of those who began therapy between 24 and 29 months of age.
* By contrast, only 30 percent of the children who entered therapy after 30 months of age (11 out of 35) made significant gains across the year. 
Prior to ACA, poorer Autistic kids were generally out of luck because of a lack of services and affordability. In Utah, there was both a lack of services in our home town and the available services were unaffordable until the past few years. Since the ACA and the court ruling that required state Medicaid cover ABA, more children are receiving therapy than ever.

I have concerns that the GOP ACA will make treatment unaffordable and unattainable for many other families of autistic children during the formative developmental years when treatment has the best chance of providing the Autistic child with a normal life.

Big Brother

Socialized healthcare has been a bogeyman in the US since the Cold War. In the fight against the ACA, the right used the popular image of Orwellian death panels that would be tasked with coldly allocating healthcare to only the most important members of society. Other images that socialized healthcare conjures are DMV styled hospitals, where patients are dying in inefficient and poorly managed lines by uncaring bureaucrats.

The ACA definitely has some majorly intrusive requirements for individuals. For a family of six to buy minimum coverage under the ACA, you may be forced to spend between 1,000 and 2,000 dollars per month or face a penalty of 2,128 dollars for 2016 (for income of 100,000 dollars). High earners were required to pay an additional medicare tax on their wages and investment income to help subsidize health care costs.

Worse still, is the fact that health premiums rose drastically each year for almost all Americans and insurance companies are starting to drop out of the ACA Marketplace because it has not been profitable insuring people with pre-existing conditions.

Unilateral Healthcare Reform

The ACA and now the AHCA were both crafted unilaterally. The GOP complained for nearly eight years that they were not given a voice in regards to Obamacare, and in a "tit for tat" move they are doing the exact same thing.

It is this "tit-for-tat" politics regarding health care that is most disturbing. One doesn't need a crystal ball to see that the Democrat's will reinstate Obamacare (possibly a far more left leaning version) as soon as they regain power (which is almost assured to happen with Trump's popularity). This leaves the American people in limbo in regards to healthcare every 4-8 years wondering how will something as important as healthcare change.

Healthcare should not be used as a political pawn.

Making Healthcare Affordable

Principle not politics needs to guide the discussion of healthcare, and until that happens the American people are getting the raw deal.

Personally, I think there must be a better way to help people get healthcare than handing the reins to the Federal government.

As tax professional, government can subsidize healthcare in a less intrusive and more cost efficient manner. If I had the power to enact regulation, I would move to use charitable giving and medical expense deductions to make health care more affordable to more people.

Special status could be given to certain 501(c)(3) organizations that provide financial assistance for the healthcare expenses of the poor. For contributions to these organizations, a taxpayer could be given a generous credit (without income limits) instead of a deduction. Making the credit available for contributions up until the filing deadline (like with the IRA) would allow tax payers to make contributions based on their tax situation (the time when people are most interested in saving tax dollars). This way more healthcare would be subsidized outside of entitlement programs.

Necessary medical expenses should be fully deductible, and health insurance should be an adjustment from income for all taxpayers (not just the self-employed). This would alleviate the burden that people face when they have high medical bills and a tax bill in the same year.

Tuesday, May 16, 2017

Student Loan Repayment and Education Costs - Tax Benefit Approach to Encouraging Loan Repayment

As student loan debt reaches unprecedented levels, it will become important that government officials find methods to reduce the cost of a college education, encourage repayment, and allow debtors a way out if repayment is simply impossible. While reducing the cost of a college education and allowing debtors a way to receive a discharge of student load debt are issues that are beyond the scope of my expertise, utilizing the US tax code to encourage borrowers to repay their loans could be a powerful and beneficial tool to get student loan debt repaid.

There are a couple of misguided principles that currently rule how the tax code encourages American's to get a college education. First, education credits currently end up benefiting parents who  (in many cases) may not pay a dime of the student's educational expenses, or they are only available to the student in years where they have no income. Second is that student loan interest is the only benefit available to student's who are making their loan payments. Unfortunately, the student loan interest deduction is limited to a paltry 2,500 dollars and the deduction is completely eliminated if your income is more that 80,000 dollars (160,000 for taxpayers filing married joint returns). The first principle wastes tax benefits for the student who is going repay the debt, and the second principle doesn't provide a strong enough incentive for students to diligently repay their student loan debt.

Tax Credits for Graduates

Education tax credits would be better utilized if they were carried forward, usable by the student borrower only, and only allowable after graduation from a bachelor or graduate program. This would reduce the number of tax credits that are taken each year by making graduation a prerequisite for claiming the tax benefit. It may also reduce the number of students that attend college each year who lack the direction and intention of graduating with their degrees.

This would also provide new graduates with an income cushion that would make loan repayment a less stressful proposition in the early years of their new careers while their income is lower.

Unlimited Student Loan Interest Deduction

The student loan interest deduction could be made fully deductible. Doing so would provide incentive for repaying the loans and increase the repayment percentages. The deduction could also be tiered between borrowers who finish their degrees and those that do not graduate. If the borrower graduated, the interest deduction could remain a adjustment from income. Borrowers who do not graduate would be eligible for an itemized student loan interest deduction.

Revenue Neutrality

In order to keep this proposal revenue neutral, limits that have been in place against student loan interest (at different levels possibly) should be made to apply against the mortgage interest deduction. The mortgage interest deduction has been a special interest loophole for the mortgage industry and realtors for several years. Unfortunately, it has been a contributing justification for unsustainable increases in home prices across the country for the past 10-15 years and ballooning debt. If we take a utilitarian approach to providing individual income tax benefits, it is clear that providing more tax relief to college graduates is of more value to society than rewarding mortgage debtors. The cost of a completed college education benefits the country with a more competitive workforce and taxpayers with a high earning capacity, while bloated mortgages benefit big banks and the bottom line of realtors that make thousands of dollars on every sales transaction that they close.

Student loan defaults are a major problem facing our nation's budget. Congress must find better answers to encourage loan repayment, and this issue needs to be solved sooner than later. Current student loan default rates are at 11%, but the true rate of non-repayment is far higher if the number of borrowers on reduced or income based repayment plans are taken into account.