Home Health Stands to Reap Benefits from Tax Reform

It's nice to see some positive news in our space!


Originally posted here

The financial ripple effect of the U.S. Senate’s approval early Saturday of the GOP’s $1.5 trillion tax bill is expected to be felt by various industries, including home health.

The proposed tax bill can greatly benefit many companies’ bottom lines; however, a provision within the bill is leaving health care providers on edge as to how it might impact Medicare and Medicaid enrollees.

Lower corporate rates

One of the headline components of the legislation: It could drastically cut the nation’s corporate tax rate from its current state at 35%, to as low as 20%.

While the tax bill has passed the House and the Senate, it now goes to a conference committee, where the final version of the bill will be drafted, and the final corporate tax rate determined.

While the telecom and transportation industries rank among the top industries expected to receive a big boost in earnings from a lower corporate tax rate, according to an analysis by Chicago-based financial firm UBS, sectors within the health care realm, including home health, are also expected to reap benefits.

Other equity analysts concurred. For instance, Jefferies analyst Brian Tanquilut named Louisville, Kentucky-based home health services provider Almost Family Inc. (Nasdaq: AFAM), among those in the health care sector that can benefit from this proposed rate.

Overall, the lowered corporate tax rate can be a financial boon for companies within the home health sector, agreed to Whit Mayo, senior research analyst of healthcare services at Chicago-based private equity firm Baird.

“[The lower corporate tax rate] sets up to be a nice, meaningful, positive for anyone that is currently paying taxes north of 20%. The average corporate tax rates of the companies that I cover are approximately 40%,” Mayo told HHCN. “So that’ll have some favorable implications on the sector in terms of new cash flow.”

Impact on Medicare/Medicaid

A provision within the recently passed tax bill involves the repeal of the individual mandate as part of the Affordable Care Act (ACA). In broad strokes, if the Senate’s proposal to repeal this mandate is included in the final version of the bill, beginning in 2019, consumers will be able to go without health care coverage without facing any penalties.

This provision, however, has alarmed stakeholders in the industry, including members of the Partnership for Medicaid Home-Based Care (PMHC)

If enacted, the repeal would lead to health care becoming “more expensive and less accessible” for Americans who rely on ACA coverage, PMHC Chairman David Totaro explained.

“The Congressional Budget Office (CBO) estimates that if this repeal is enacted into law, the impact will be felt by 13 million Americans, of which fully 5 million are individuals who would otherwise enroll in Medicaid for the coverage they and their families need,” Totaro explained in a press release ahead of the Senate’s approval. “In addition, it is projected that the Tax Cuts and Jobs Act will increase federal deficits and our nation’s debt by $1.5 trillion, creating the risk that future budget action—including potentially deep Medicaid cuts—may be necessitated as a result.”

It may still be too early to tell just how the proposed tax bill might impact Medicare and Medicaid, or whether the repeal of the individual mandate would translate into fewer people receiving home health services, according to Darby Anderson, executive vice president and chief development officer at Frisco, Texas-based Addus HomeCare, Inc. (Nasdaq: ADUS).

“Should the repeal of the individual mandate make it into the final bill, it would have the most immediate impact,” Anderson said. “However, I do not believe the impact would be material to either Addus or the home care industry at large.”

Mayo agrees in that the repeal of the individual mandate will have no significant bearing on the home health industry at large.

“I don’t think that’s really going to impact the sector at all. Of those that are buying health insurance policies through the marketplace plans, over 90% of those individuals are … receiving such generous tax credits and premium support that they’re still going to go buy those health plans,” he said. “If we look at the implications on the health care industry overall, if you believe that repealing [the individual mandate] will change the amount of individuals with health insurance, I don’t think that impacts home health at all, given that they predominantly take care of the Medicare population.”

However, Anderson shares Totaro’s concerns on where cuts might be implemented.

“The concern is how or where any budget cuts would be implemented, should the tax cuts not drive equivalent economic growth to fully offset the cost of tax cuts,” said Anderson. “Having just gone through the health care debate in which proposals included an almost trillion-dollar cut to Medicaid, it would seem possible that Medicaid and even Medicare cuts would have to be considered.”

Written by Carlo Calma