What tax reform means for dental

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Tax reform may have several effects on dental care

Lawmakers in Washington are nearing the final steps of passing historic tax reform legislation. While major legislation such as tax reform impacts a broad area of financial and monetary activity, each industry can review the pending legislation to forecast the potential impacts on consumer behavior. In this light, let’s take a look at how the Tax Cuts and Jobs Act may affect dental care.

The Tax Cuts and Jobs Act may change the medical expense deduction

One key effect of this Republican led tax reform bill is that it seeks to simplify the tax code by eliminating a number of popular deductions, while in turn lowering tax rates for most tax payers. One of these potential deductions that could be changed is the medical expense deduction. The current tax code allows tax payers to deduct a portion of various medical and dental expenses they incur during the year including expenses for routine dental and orthodontic care.

There is the potential that this medical expense deduction could be eliminated or changed in the final version of the legislation. The House version of the tax bill completely removed this medical expense deduction, while the Senate version changed the allowed amount of deductible medical expenses from 10% to 7.5% of adjusted gross income. Lawmakers are negotiating the details of the final version that could be passed so we’ll have to watch and see what happens to the medical and dental expense deduction.

UPDATE: The final version of the Tax Cuts and Jobs Act will actually increase the medical expense deduction from 10% to 7.5% of adjusted gross income for 2 years. Then the deduction will revert back to 10% of AGI.

What does it mean for dental? If the final version of the tax reform bill eliminates or changes the medical expense deduction, then money that members pay towards necessary medical, dental, and orthodontic care will not be deductible like they are today. This could in effect make medical and dental care more or less expensive, depending on the final medical expense deduction in the final tax bill.

The individual mandate for medical insurance coverage will be repealed

It is widely expected that the final version of the Tax Cuts and Jobs Act will fully repeal the individual mandate to purchase health insurance. The Senate version of the bill includes the repeal of the individual mandate, while the House version does not remove it. However, a majority of Republican congressmen support the mandate’s repeal, so it is likely to be included in the final version of the bill. The main reason for the individual mandate repeal is that is creates a tax savings for the government that lawmakers are able to use in other areas for tax reduction.

What does it mean for dental? There are several results that could happen related to the repeal of the individual mandate to buy medical coverage. The most obvious is that a number of people will no longer purchase health insurance because they will not face a tax penalty for not carrying coverage. This could possibly make funds available for those who seek dental care as dental coverage is typically much less expensive than medical insurance. Also, it reduces the likelihood of future government regulation regarding dental insurance or dental care.

Tax cuts can make additional funds available for families to spend on vital care needs

One of the stated purposes of the Tax Cuts and Jobs Act is to reduce the tax burden on most taxpayers, as well as to encourage job creation through corporate tax reduction. If this holds true in the end, then many families will see additional dollars in their monthly income or annual tax refund that can be used for a variety of needs. Likewise, if tax reform can spur jobs growth then a number of opportunities can be created for many families.

What does it mean for dental? Dental care can often become a deferred priority until it becomes vitally necessary due to a major dental issue. If families have additional funds in their budgets, then coverage for routine dental care can be more accessible to help avoid expensive dental work from larger dental problems.

Dental insurance may become a greater value due to tax reform

With these possible changes regarding tax reform and dental care, there is a possible outcome regarding dental insurance. Because the deductions for medical and dental services could be changed, it may no longer be an advantage to pay for routine dental care in full with regular out of pocket funds. With dental insurance, members can purchase insurance coverage that will pay additional benefits to dentists that can create a net savings for members. Plus members of employer sponsored benefit plans can take advantage of tax savings for premiums with a pre-tax cafeteria plan.

Likewise, with the repeal of the individual mandate for health insurance, people will be able to make their own decisions regarding medical coverage and also dental coverage. Depending on how families choose to spend additional funds they may obtain due to tax cuts, dental insurance can become a more attractive proposition to cover the dental care needs of a family.

It is true that major legislation from Washington, DC can have wide effects on our country and economy. Though it may take time to see the direct impacts, the forecasts on dental care that we’ve discussed seem to be a reasonable assumption. Fortunately with freedom of choice and competition, individuals and families are able to make the best choices and decisions for their dental and medical care needs, and that will continue well after tax reform.

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