How The Itemized Medical Deduction Impacts Healthcare Organizations And Their Patients

The itemized medical deduction has shaped healthcare financing since 1942, yet most healthcare organizations and their patients remain unaware of its limitations. Recent analysis from the Brookings Institution reveals that while this tax provision forgoes $9.5 to $12.3 billion in federal revenue annually, less than two-thirds of eligible taxpayers actually claim these benefits.

For healthcare leaders in Florida and beyond, understanding how the IMD works matters when patients face high medical costs. Recent policy changes have concentrated benefits among older and higher-income patients, which affects collection strategies and financial counseling approaches at medical practices and hospitals.

Why The Itemized Medical Deduction Falls Short

The IMD allows taxpayers to deduct out-of-pocket medical expenses exceeding 7.5% of their income. In 2022, taxpayers deducted $92.9 billion through this provision, representing nearly one-fifth of total out-of-pocket medical spending that year. 

Among households age 50 and over in 2018, approximately 47.1% had medical spending above 7.5% of their adjusted gross income. 6% qualified to receive additional federal tax savings due to their high medical spending. 

Healthcare organizations in Florida should note these patterns when developing financial assistance programs and patient education strategies. According to the Brookings analysis, the data shows that older patients represent the primary beneficiary group, with approximately two-thirds of all IMD claims coming from taxpayers over 65 in 2022.

Among eligible taxpayers, the implied time and hassle costs average around $1,000, while tax savings average approximately $1,300. This could also imply minimal net benefit for those who complete the complex documentation and filing requirements.

Financial Implications For Healthcare Providers

The One Big Beautiful Bill Act, passed in July 2025, made several changes affecting the IMD. The legislation permanently increased the standard deduction to $15,750 for single filers and $31,500 for married couples. This higher standard deduction may make it harder for patients to benefit from itemizing medical expenses.

The bill also contains changes to federal health care programs, such as imposing work requirements on Medicaid enrollees starting in 2027. The Congressional Budget Office predicts these changes, combined with the expiring Premium Tax Credits, may reduce health insurance coverage for an estimated 16 million people by 2034. This could impact the amount of unreimbursed medical spending subject to the IMD.

For healthcare finance teams, these shifts have repercussions. When fewer patients can access tax relief for high medical costs, organizations face increased pressure on collections and charity care programs. If patients believe they can recoup costs through tax deductions but fail to claim them or cannot itemize in the first place, organizations may see slower payment rates and higher write-offs.

Distribution Of Tax Benefits Across Patient Populations

Approximately 94% of the tax savings accrue to the top half of the income distribution and 41% accrue to the top 10%. This occurs because both itemization rates and marginal tax rates increase with income.

Claiming rates show clear patterns by age. Only 1% of taxpayers under age 50 claim the IMD, while 17.5% of taxpayers age 85 and over claim it. The share claiming IMDs generally increases by income and by age.

Among older households, approximately 62% of potential tax savings were claimed during 1996-2012. This ratio was even lower among those with lower levels of income and wealth and those in poorer health.

Healthcare organizations serving diverse patient populations should account for these disparities when designing financial counseling programs. 

What Healthcare Leaders Should Consider

Healthcare organizations can take steps now to help patients manage financial burdens. Financial counseling programs should help patients understand the difference between actual and perceived tax benefits. Many patients may overestimate their ability to claim medical deductions, possibly leading to payment delays or financial hardship.

Review charity care policies to ensure they capture patients who fall through gaps in both insurance coverage and tax relief. 

Consider how federal policy changes specifically affect your patient population. Florida’s demographic composition, with a substantial portion of residents over 65, means the IMD’s concentration among older taxpayers has particular local relevance for healthcare providers in the state.

Plan For Change

The tax code’s role in healthcare financing remains complicated. As the Brookings Institution notes, the IMD was designed to provide relief for high medical costs, yet its current structure serves only a fraction of the intended population. The combination of high administrative burdens, complex eligibility rules and recent policy changes means healthcare organizations cannot rely on this provision to meaningfully reduce patient financial stress.

Healthcare leaders should prepare for conditions where fewer patients benefit from tax-based medical expense relief. This requires proactive financial planning, stronger patient education and more robust internal programs to help patients manage costs. Organizations that adapt their financial counseling and assistance programs may be better positioned as policy changes take full effect.

Make Financial Planning Part Of Patient Care

Regulations change often, and your organization deserves confidence when planning for what comes next. Our healthcare advisors can help you interpret updates to healthcare tax policy and design patient financial programs that work in today’s environment. Connect with the James Moore healthcare team.

All content provided in this article is for informational purposes only. Matters discussed in this article are subject to change. For up-to-date information on this subject please contact a James Moore professional. James Moore will not be held responsible for any claim, loss, damage or inconvenience caused as a result of any information within these pages or any information accessed through this site.