By David Cutler. Published on November 12th on The Washington Post.
President-elect Donald Trump is already signaling that he might backpedal on his promise to repeal the Affordable Care Act, telling the Wall Street Journal Friday that he’d consider hanging onto popular Obamacare provisions such as “the prohibition against insurers denying coverage because of patients’ existing conditions, and a provision that allows parents to provide years of additional coverage for children on their insurance policies.”
“I like those very much,” he said. Three days into his transition, and it looks like the real estate tycoon is becoming a politician.
His apparent reluctance to scrap the entire ACA is understandable. In the long run, waffling on repeal will probably be less painful than causing a health-care catastrophe. Trump capitalized on Republicans’ long dislike of the Affordable Care Act by focusing on news, in the last weeks of the campaign, that premiums would increase sharply for many Americans purchasing insurance through its exchanges. But he didn’t promise a pared-down health-care regime. He promised to repeal and replace Obamacare with a plan that would cover everyone, offer more choice and cost less.
It was a populist approach to health care that wasn’t new. Sixteen years ago, in “The America We Deserve,” he wrote: “I’m a conservative on most issues, but a liberal on this one,” an appeal that didn’t hurt candidate Trump. But President Trump is likely to find the issue challenging. Repeal requires only the will of Congress. Replacement is subject to the laws of economics and mathematics, which aren’t on his side.
In the campaign, Trump proposed replacing the Affordable Care Act with a tax deduction for individuals who pay for health insurance out of pocket. Like all tax deductions, such a deduction is worth more to people with higher tax rates. But most of those who would be left without coverage by an ACA repeal are lower-income individuals with tax rates that are already low. Thus, the benefit they’d receive from a deduction doesn’t come close to the financial hit they would experience from an ACA repeal. Independent estimates suggest repeal would cause about 20 million people to lose coverage, only one-quarter of whom would purchase insurance with the deduction. The rest wouldn’t be able to afford it.
Perhaps with this in mind, Trump proposed several steps to lower the cost of health insurance. Each of them represents Republican-friendly alternatives to the current system, but none is likely to have the hoped-for impact.
“Our replacement plan,” Trump told a crowd in Roanoke, Va., in September, “includes expanded access to Healthcare Savings Accounts, with support for those who need it.” HSAs, which combine tax-free savings with a high-deductible insurance policy — for families, a deductible of $2,600 or more — have long been a conservative favorite. In fact, legislation enabling HSAs was passed as part of the Medicare prescription drug benefit in 2003. There has been a very rapid increase in the use of HSAs in the interim, as employers offering health plans turned to them to offset rising health costs.
HSAs may be reasonable for higher-income families, who can afford to put aside a portion of their household income each month for future health-care spending, but they are not a compelling answer for people of modest means. Few families who will lose ACA coverage will want to pay thousands of dollars for an insurance policy that doesn’t pay out anything until they have spent another $2,600 on direct medical bills. It’s possible that Trump could subsidize the insurance premiums or savings account for moderate-income families, but such a subsidy would drive up government costs immensely. The large number of families with modest incomes who need help affording health insurance is the primary reason why the Affordable Care Act subsidies were not more generous.
When it comes to buying insurance, Trump says, “We have to get rid of the lines around the state, artificial lines.” The idea is that insurers should be free to sell in any state, regardless of where they are domiciled. A laudable concept in spirit: Insurance market competition allows consumers more choice and could drive down premiums.
But experience is not on Trump’s side. Three states have already eliminated restrictions on out-of-state sales of insurance — Georgia, Maine and Wyoming — and not a single insurer has entered any of these markets. Why? To sell insurance in one of these states, the big barrier for carriers isn’t meeting individual state regulatory requirements. Rather, an insurer has to have contracts with local hospitals and doctors that an out-of-state insurer doesn’t have. When they try to set them up, insurance carriers find that doctors and hospitals charge them high prices; Why offer low prices to an insurer that has few enrollees, and thus doesn’t have leverage to direct a large volume of patients elsewhere? Facing high provider prices and correspondingly limited enrollment, there is no new entry, and no new competition.
The only way for Trump to address this would be to regulate the maximum prices that providers are allowed to charge to insurers. And that seems unlikely for a president-elect and Congress who have railed against excessive federal regulations.
Rather than encouraging competition, the primary impact of cross-state purchasing would be to allow insurers to change their corporate location in order to avoid consumer protections. Think about it: Why are most credit card companies headquartered in Delaware or South Dakota? Because those states allow banks to charge any interest rate they want, thus avoiding consumer-protection laws in states where the borrower is located. If cross-state purchasing of health insurance is allowed, enterprising state governments will seek to attract health insurers by allowing them free reign to price the sick at any rate they chose, impose annual and lifetime limits on coverage and make accessing care difficult. To prevent this, Trump would need to re-create the consumer protections in the Affordable Care Act — the same ones he has promised to wipe away.
Other Trump promises will increase the pressure he faces on health care. He promised large income, corporate and estate tax cuts, generally tilted toward high-income individuals. If Trump wants to balance the budget — as Republicans say they want to do — he and Congress will need to find areas of spending they can cut. With about one of four federal dollars spent on health care, it’s impossible to do that and avoid cuts to Medicare and Medicaid. Politically, though, as Trump said during primary season, “Abolishing Medicare, I don’t think you’ll get away with that one. It’s actually a program that’s worked. It’s a program that some people love, actually.”
Following the lead of congressional Republicans, Trump favors block-granting Medicaid dollars to states. He hasn’t said how the block grants would compare with existing spending, but most block grant proposals save money by growing the block grant less rapidly than medical costs increase. One wonders what Trump’s supporters with disabled children or elderly parents will think when states have to cut coverage for them.
But even the savings from a Medicaid block grant is not likely to be enough to offset the size of the tax cuts that Trump calls for — estimated at $3.7 trillion to $5.9 trillion over the next decade. Instead, Trump would likely need to turn to the other Republican standby: replacing the Medicare guarantee of coverage for seniors with a voucher that seniors would use to shop for private insurance. In many recent Republican proposals, the voucher amount is set by law to grow less rapidly than underlying medical costs. Effectively, this saves the government money by transferring some of the costs of Medicare to beneficiaries. House Speaker Paul Ryan recently indicated that he wants Medicare privatization to be part of the Obamacare repeal.
Nor would this be the only weight Trump’s policies would place on the elderly. The Affordable Care Act fills in the “doughnut hole” in Medicare’s coverage of prescription drugs — the range of spending where insurance does not pay for any of the cost of medications, and beneficiaries are responsible for the full amount. Repealing the Affordable Care Act shifts these high costs back to less-healthy seniors.
There is little public support for block-granting Medicaid, turning Medicare into a voucher program or reinstating the Medicare doughnut hole. Only one-quarter of Americans support turning Medicare into a voucher program, including less than one-third of Republicans. Medicaid block grants are supported by only one-third of Americans, including only half of Republicans. Trump’s mantra, “Make America Great Again,” means different things to different people, but it’s hard to imagine that anyone thinks it means going back to the days when fewer people were covered for health risks and those who are sick paid more for it.
To be clear, I am an unlikely person to advise Trump. I worked on President Clinton’s health-care reform initiative and was a health-care adviser to President Obama’s presidential campaign in 2008. I favor improving, not abandoning, Obamacare. But if Trump were to seek my guidance, here is what I would suggest. First, heed Colin Powell’s advice to President George W. Bush in another context: If you break health care, you own it. Don’t repeal Obamacare until after you’ve developed a real plan that covers as many people as the ACA at a cost that is affordable and that has majority public support.
Second, focus on an aspect of the health-care debate where your views align with majority opinion: drug pricing. During his campaign, Trump advocated that Americans be allowed to re-import pharmaceuticals from other countries. Branded pharmaceuticals sell for much more in the United States than in other countries. Allowing re-importation would enable consumers, state and local governments, and the federal government to reap significant savings. Three in four Americans support drug re-importation. Indeed, it is the only item of health-care agreement between large groups of Democratic and Republican voters. Sen. Bernie Sanders of Vermont, for example, supports this idea.
But even here, implementation will be an uphill climb. Americans might get the right to buy prescription drugs from Canada, but what should be done when pharmaceutical companies refuse to sell to Canadian pharmacies that export to the United States? Or when pharmaceutical companies get one version of a drug approved in the United States and a very slightly different version approved abroad? Politically, the biggest opponents of efforts to reduce pharmaceutical prices are likely to be congressional Republicans, many of whom are beneficiaries of pharmaceutical industry contributions. Is Trump willing to spite his own party and work primarily with Democrats? One clue may come from the fact that Trump’s presidential transition website omits any mention of pharmaceutical re-importation from its list of health-care priorities.
However he proceeds, Trump will find that health care goes from being an applause line on the campaign trail to a headache once he’s in office. It is entirely possible that Obamacare will cut into the popularity of more than one president.