Senator Proposes Expanded Tax Deductions for Out-of-Pocket Medical Expenses

Senator Josh Hawley (R-MO) has proposed legislation to allow taxpayers to deduct up to $25,000 in personal medical expenses paid out-of-pocket, as well as deductions for out-of-pocket health insurance premiums. This proposal aims to expand existing medical expense deductions, which currently only benefit a small percentage of taxpayers who itemize and have medical expenses exceeding 7.5% of their income. Hawley pitches this as a broader reform to make healthcare more affordable for more Americans by moving these deductions above the line, which would integrate them into the standard deduction and thereby extend eligibility to middle-class families. This proposal arrives amid ongoing political negotiations over the extension of COVID-era Obamacare subsidies, which are set to expire at the end of the year. The subsidies have helped control health insurance premium costs, and their expiration threatens to result in significant premium increases. Lawmakers in both the House and Senate are negotiating various frameworks, including stopgap measures with provisions addressing income caps, minimum premium requirements, and combating fraud, waste, and abuse to curb rising healthcare costs. Representative Brian Fitzpatrick (R-PA), co-chair of the bipartisan Problem Solvers Caucus, is leading efforts on a House framework to extend the Obamacare subsidies for two years with new income restrictions and other reforms initially proposed by the White House. This legislation could be introduced before the end of the week, with the aim of a vote before the holiday recess. Senate Democrats are also preparing a proposal for the extension, potentially for up to three years, with coordination between Senate and House Democrats underway. Hawley's medical expense deduction proposal is separate from, but complementary to, the broader ongoing discussions of healthcare subsidy extensions and reforms. Details on how his plan would be funded have not been finalized. The larger legislative context includes efforts to make health insurance more accessible and affordable through a combination of subsidies, cost controls, and tax incentives. The combination of expanding deductions for out-of-pocket healthcare expenses while negotiating subsidy extensions represents a multi-pronged approach to managing rising healthcare costs and increasing affordability for American families. Legislative developments are expected to unfold rapidly in the final weeks of the year as lawmakers work to finalize these measures before key subsidies expire.