Column: Killing the medical expense deduction will hit the middle class — and hard

Republicans drafting their tax cut proposal have been awfully cavalier in particular about one deduction they’re proposing to repeal: the deduction for medical expenses.

A fact sheet issued by House Ways and Means Committee Republicans when they unveiled their tax plan denigrated this deduction as one of “a myriad of provisions that many will never use and others may use only once in their lifetime.” Other aspects of the tax plan, they said, would make up for losing this deduction by giving families “the flexibility to use their paychecks for what matters most to them every year.”

Tell that to Bill Storey. “This would be a massive hit,” Storey, 61, told me Tuesday. He and his wife, Joan, 64, had to retire from their jobs a few years ago as a technology professional and schoolteacher, respectively, at a St. Louis-area school district—he to take care of a sick parent, and she because a heart condition made it impossible to continue working. Now their medical expenses reach about $37,000 a year.

The sum includes $1,500 in monthly COBRA premiums for their insurance (COBRA allows them to continue their employer-based coverage by paying for it out of their own pockets), heart drugs for Joan that aren’t covered by their health plan, tests and treatments for her condition and other incidental healthcare expenses falling outside the COBRA umbrella.

That spending yields them a deduction of about $29,000 in healthcare expenses. For them it’s not a once-in-a-lifetime tax break, but a provision that enables them to survive financially year after year. It wouldn’t give them more flexibility to use their paychecks, but would wipe out much of their income.

Tell it to Stephen Trattner, 73, a retiree from a Southern California scientific think tank suffering from multiple sclerosis who now lives on a $75,000 annual pension, Social Security, and whatever he can eke out from about $100,000 in savings. It all has to go to pay for 24-hour home care because he needs assistance with the daily chores of life—helping him get into and out of bed and a wheelchair, preparing his meals, driving to appointments. Trattner writes off about $70,000 a year in medical expenses, which gives him a tax break in the range of $15,000-$20,000.

“Removing the itemized medical deductions would spell financial disaster for me,” he says. It means burning through the last of his nest egg in a bit more than half the time he might be able to husband it otherwise. And that might drive him out of his Westwood condo in three years, instead of allowing him to stretch out his residency there for another six or seven. And that’s if his expenses don’t rise—but condo fees and wages for his home help service go up every year.

Trattner and the Storeys may be more typical of the beneficiaries of the medical expense deduction than Congressional tax drafters know. People have the impression that the tax break is almost impossible to obtain, mostly because the deduction has a fairly high threshold—only expenses that exceed 10% of a household’s adjusted gross income can be written off, and only by taxpayers who itemize deductions.

But for those who claim it, the deduction is a lifeline. Moreover, unlike the mortgage interest deduction, it’s overwhelmingly a middle-class benefit. Nearly 61% of the $46.9 billion deducted in 2015, the latest year available, was claimed by more than 6 million taxpayers with incomes less than $75,000. The average expense claimed by those taxpayers was $8,990—more than they claimed in home mortgage interest ($6,384), according to calculations by AARP. Because of the 10% limitation, the actual average deduction for those taxpayers came to only about $3,200 each.

What’s cruelest about the Republican effort to repeal the medical expense deduction is that it directly targets some of the most vulnerable Americans. They’re people who already are shouldering catastrophic medical expenses, with only the deduction standing between them and poverty. They’re people with chronic diseases such as muscular dystrophy or multiple sclerosis or with cancer diagnoses requiring drugs costing five or six figures per year, or with disabled children, spouses, or parents requiring specialized help for much of the day or around the clock, or residents of nursing homes covering their charges out of dwindling nest eggs.

For MS sufferers such as Trattner, drugs and therapies are a heavy expense, but the real cost is in home care, in part because more of the expense falls outside insurance coverage. “We haven’t figured out in this country how to support people with long-term needs,” says Bari Talente, the head of advocacy for the National MS Society. As soon as the GOP’s intention to kill the medical expense tax break became public, she says, “we started getting calls from people who said they rely on the deduction to pay for their in-home caregivers.”

As we reported last week, the Congressional approach to the medical expense deduction has been a model of inconsistency. The deduction originated in 1942, when lawmakers might have realized that servicemen would be returning from World War II with medical conditions their families were ill-equipped to manage. At that time the threshold was 5% of adjusted gross income. That was lowered to 3% in 1954, raised to 5% in 1982, to 7.5% in 1986, and 10% in 2016. As recently as this spring there was talk of cutting the threshold back to 7.5%. But that evaporated in the hell-for-leather Republican push to skim as many pennies as possible from the middle class to pay for a tax cut aimed squarely at the 1%.

The U.S. has been moving toward healthcare policies aimed at making medical bankruptcies a relic of the past, chiefly through bringing medical coverage to millions more via the Affordable Care Act. Repealing the medical expense deduction would represent about as sharp a U-turn as one could imagine, exposing millions of families to economic hardship that has befallen them through no fault of their own.

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