Obamacare

After facing criticism for failing to provide a credible plan for replacing Obamacare, candidate Donald Trump unveiled a batch of health care policy proposals that align with many conservative proposals to replace the health care law.

As president, almost none of Trump’s proposals made it into the American Health Care Act which eventually died in the House of Representatives. Republicans were unable to find enough votes for common ground, even though they held majorities in the House, the Senate, and had control of the White House.

This article will cover Trump’s original healthcare proposal, which was promised to be “phase 2” and “phase 3” of the AHCA, because these were Trump’s own ideas.

Summary

Trump wanted to repeal the Affordable Care Act and replace it with something “better”.
Trump’s plan kicks millions out of the reach for affordable health care and Medicaid. Mostly lower class Americans.
Republicans love Obamacare’s provisions, just don’t call it Obamacare.

About the Plan

Trump’s plan for health care reform, henceforth to be known as “Trumpcare”, is deeply rooted in the mainstream conservative view that health care should be a privilege rather than a right. If you can’t afford health insurance on your own, that is not the federal government’s problem.

In his announcement Trump proposed the following policies:

Immediately deliver a full repeal of Obamacare.
Allow the sale of health insurance across state lines.
Tax exemption on employer-based health insurance plans to be extended to individuals who purchase coverage on their own.
Allow individuals to use Health Savings Accounts (HSAs).
Medicaid to be transformed into a state block grant program.
Allow prescription drugs to be imported.
Full transparency of health care pricing.
Make America Great Again.

Reality

Conspicuously missing from Trump’s new health care proposal is any mention of allowing Medicare to negotiate drug prices with pharmaceutical companies. Trump had previously claimed the federal government could save $300 billion annually through such negotiations, a figure that fact checkers have pointed out is preposterous.

First we feel as if we need a little history for context. The moment President Obama announced in his first term that his administration would focus on health care reform, the Republicans pouted and obstructed. Funny thing was, as we show in Appendix B, the major points of the health care reforms put forward by Obama were originally Republican ideas. Unfortunately to pay for ObamaCare, it puts a tax on the top earners (who are already at historic low rates) which enraged Republicans.

According to an LA Times investigation, the wealthy 1% started pressuring their Republican politicians with big donations, pushing for an end to Obamacare at all costs, since a repeal would be an immediate $346 billion tax cut over ten years for the wealthy.

This made the Republican stated number one goal to make Obama a one-term President, obstructing him at every turn, even if it meant shutting down the United States government, and even crashing the world economy, ultimately over their own health reform policies. Because however ambivalent Republicans may be about health reform they are not at all ambivalent about big tax cuts to the wealthy at the expense of the middle and lower classes.

Republicans bashed the proposal saying things like:

Americans wouldn’t enroll in Obamacare. Which was false.
Obamacare wouldn’t meet its enrollment goals. which was false.
Insurers would want no part of the Obamacare system. Which was false.
Even if Americans enrolled, they wouldn’t pay their premiums. which was false.
Even if people paid their premiums, the flawed Obamacare structure would send premiums soaring. Which was false.
Obamacare wouldn’t reduce the uninsured rate because it will only help those who already have coverage. Which was false.
Obamacare would lead to a “net loss” on overall coverage. Which was super-false.
Obamacare would lead to higher deficits and a weaker fiscal footing for the nation. Which was false.
Americans would end up hating the coverage they receive through Obamacare. Which was also false.

Another main conservative criticism of Obamacare is that economy will go into a “death spiral” and is a “job killer“. Sadly reality had again sharply disagreed with them.

Now that is settled let’s review each proposal of Trumpcare.

Immediately deliver a full repeal of Obamacare.

Remember the long drawn out fight that the country had in 2010 over healthcare reform to get what we have today? Well Trump proposes we set the counter back to zero and have that entire fight over again. Fun! That also means an estimated 9.3 to 10.3 million people immediately lose their insurance coverage. Also fun!

The non-partisan Congressional Budget Office reviewed the effects on the economy over a 10 year period, should a full repeal of Obamacare occur. They found immediate savings from removing subsidies and more taxes would be collected by forcing more people into the labor market for jobs that offer health benefits.

New savings from repealing Obamacare:

Removing subsidies for health insurance coverage would generate gross savings for the government of $1,658 billion.
Increase the labor supply generating an extra $216 billion in revenues.

Those gross savings of $1,874 billion over 10 years would be partially offset by the effects of eliminating several Obamacare provisions related to insurance coverage that are projected to reduce federal deficits—including the provisions that impose penalties on some employers and uninsured people and that impose an excise tax on certain high-premium insurance plans. In addition, increases in employment-based coverage stemming from a repeal would reduce revenues because most payments for that coverage are exempt from income and payroll taxes.

New costs from repealing Obamacare:

Gone are the savings listed above, increasing federal deficits by $502 billion.
No more reduced payments to hospitals, to other providers of care, and to private insurance plans delivering Medicare’s benefits, increasing federal deficits by $879 billion.
Bye-bye to the increased the Hospital Insurance payroll tax rate for high-income taxpayers, added a surtax on those taxpayers’ net investment income, and imposed annual fees on health insurers, increasing federal deficits $631 billion.

All told, CBO and JCT estimate that repealing the Affordable Care Act would raise federal deficits by $137 billion over the 2016–2025 period through its impact on direct spending and on revenues. I’m not a businessman but projecting profits of $-137,000,000,000 over 10 years (and even worse when you look at their projects over 20 years) that wouldn’t be great for my business at all. We’ll chalk this up in the loss column.

Allow individuals to use Health Savings Accounts (HSAs).

So now that ObamaCare is gone, what does TrumpCare do to replace affordable health insurance? The “crown jewel” of Trump’s plan is health savings accounts — which are tax-exempt savings accounts and used only to pay for medical expenses.

Trump doesn’t seem to be aware that individuals in the U.S. are already allowed to use Health Savings Accounts. It is certainly possible to advocate the expanded use of HSAs, but the Trump plan simply proposes to “allow individuals to use Health Savings Accounts” as if that isn’t already a thing, as HSAs have been around since 2003. (Congress created them at the same time as the Medicare prescription drug benefit).

The major problem with HSAs as the main focus of your healthcare replacement are, you are paying your own medical bills using money you saved. That’s not insurance.

How many people reading this could afford a major surgery that cost in the tens of thousands of dollars with the money in your savings account right now? Seeing as 63% of Americans couldn’t even cover a $500 emergency with their savings, let’s say not many of you could.

However we’ll call this a “push” simply because HSAs already exist and are available to taxpayers.

Allow the sale of health insurance across state lines.

This was another example of Barack Obama using a Republican healthcare policy to gain their support for Obamacare.

Interstate insurance purchasing was the second item in the health care section of the GOP’s 2010 “Pledge to America,” right after tort reform. It was also a part of Mitt Romney’s plan to replace Obamacare.

There are pros and cons to this plan.

Some economists have shown that allowing states to compete against each other would drive prices down allowing more uninsured to be covered. However the Urban Institute points out that Obamacare already allows for this, but it happens only if insurers adhere to stricter regulation. The Center for Health Insurance Reforms at Georgetown University looked at the 6 states that already allow insurance sales across state lines and have shown that it doesn’t have any effect. This is because it is expensive to set up new insurance markets in other states, and doesn’t make much business sense.

What Trump is actually advocating for is allowing sales across state lines but removing or minimizing the regulations, which would create a race to the bottom in which insurers have an incentive to sell plans from the state with fewest consumer protections causing states to compete to have the least amount of regulations.

There are studies that show a positive outcome could be reached but so far in practical use there is no visible benefit. We’ll consider this a “push”.

Tax exemption on employer-based health insurance plans to be extended to individuals who purchase coverage on their own.

According to Forbes, this wouldn’t have as much of an impact as you might think.

First, almost half of tax filers have no income tax liability, so an additional deduction is pretty worthless for them. This includes most Americans receiving Medicare coverage and paying part of their Parts B and D premiums.

Second, virtually all Americans who get their health insurance from work already get a tax deduction for their share of the premiums on the paycheck level.

Third, many Americans now receive health insurance for free from Medicaid, the Veterans Administration, Tricare, or CHIP. Nothing to deduct there.

Finally, self-employed people can already deduct premiums individually. This is true of sole proprietors, partners, and S-corporation owners.

So who does that leave? People who are buying individual market health insurance AND are not self-employed AND have a tax liability. While that’s a target population we should be looking to help, it’s a pretty discrete group of people.

This is at best a slight positive because a targeted few will be helped.

Medicaid to be transformed into a state block grant program.

Trumpcare doesn’t provide any information about how Medicaid would be transformed into a state block grant program, so we make the assumption that it would be nearly identical to all of the previous proposals. Oh this isn’t an original idea, not original at all in the least.

A block grant is a large chunk of money given to state and local authorities by the federal government for general purposes, such as public enforcement, law enforcement, or community development. They usually have few strings attached to them and give a lot of discretion to the local and state governments in how to spend the money.

Conservatives are alarmed at Medicaid’s growth rate, which the CBO estimates at 7 percent annually over the next decade. The program, some state officials say, is crowding out other needs, such as education.

Converting all or part of Medicaid into a block grant could help reduce the federal deficit, but would simply shift the burden and risk all to the states. With cuts in states as high as 61% in federal Medicaid funding from block grants, states would almost certainly be forced to raise taxes, sharply scale back Medicaid, or eliminate Medicaid coverage for millions of low-income people who have it today. Under previous block grant proposals Medicaid would no longer be guaranteed, and states could cut back on current eligibility levels. States would also have the flexibility to freeze enrollment and impose waiting lists. These restrictions to reduce access to care would result in about 14 to 27 million lower and middle-class people being uninsured again.

While it would benefit the federal deficit by cutting federal Medicaid funding by $810 billion over 10 years, we would see states increase their taxes and cut deep in coverage.

The idea alone would benefit the budget, but deny access to tens of millions of citizens including children, elderly, and the poor.

Allow prescription drugs to be imported.

What Trump is proposing here is to allow Americans to purchase drugs imported from countries that impose price controls in hopes that it will save money. It’s an old idea that wouldn’t address any of the primary factors driving up drug prices and also wouldn’t lower the cost of drugs.

Since there is no upside or downside we’ll call this a push.

Full transparency of health care pricing.

Trump does not explain exactly how he would implement full transparency of health care pricing, because apparently it is a tricky goal. However he has a point that full transparency would incur savings. Masking the price of health care items and services prevents competition based on price and value at numerous points in the health care system. A lack of competition can artificially inflate prices, which in turn increases the nation’s health care spending.

Luckily Obamacare already contains provisions to add transparency for health care pricing that is currently working. Could the Affordable Care Act do more for transparency? Absolutely. But from what we can gather, Trumpcare isn’t offering anything new or extra from what already exists.

We’ll call this a push.

Conclusion

Trump promises the reforms outlined above will lower healthcare costs, as we’ve shown they won’t. Trump wanted policy areas to lower healthcare costs and burdens, it doesn’t. It simply cuts benefits for tens of millions of Americans and shifts burden and risk to the states.

To summarize let’s take a look at the economic scoreboard:

Repeal Obamacare	loss
Sell insurance across state lines	push
Extend tax exemption	slight gain
HSA	push
Block grant Medicaid	gain
Import prescription drugs	push
Transparent health care pricing	push

Most of Trump’s proposals have no gain from today’s health care laws, some would cause a loss to the economy, and the biggest gain would come at the expense of tens of millions of people and to the economy of every state. In fairness Trump does mention that his policies put forth in this health reform memo is just the beginning.

However, as far as Trump’s claim that he will replace Obamacare with something “better” all depends on your perspective. If your top priority is the federal budget and nothing else then you should be excited. If you realize that the majority of costs are shifting to the states and you’ll still be paying the same (or potentially less) in taxes for Medicaid, then Trumpcare is nothing better or nothing worse. And if you are one of the 37 million who will be left without insurance again, then Trumpcare is not at all better.

Instead of focusing on practical policies, Trump’s plan really just amounts to dumping as many people off of their insurance as possible to save a dime on the federal level. At the end of the Trumpcare memo he lets us know how really feels towards the poor and the sick who cannot afford insurance:

“The best social program has always been a job”

Appendix A: About the Affordable Care Act (Obamacare)

Even though this may make this analysis far too long, including information about Obamacare will help with context when compared to Trumpcare.

The Patient Protection and Affordable Care Act (also known as Obamacare) was signed into law March 23rd, 2010. The PPACA contains a number of requirements to which insurers and individuals must adhere. Here is a list of the major changes under Obamacare.

Create exchanges/marketplaces: The heart of Obamacare is the array of online shopping centers it created, dubbed Health Benefit Exchanges by the 2010 Affordable Care Act, where people who don’t get their insurance through their employer can go to buy coverage. The idea was to create an Expedia for medical coverage instead of airplane tickets, bringing insurance companies together to compete to offer affordable plans.

Extension of Dependent Coverage: If a parent’s health insurance plan covers dependents, you usually can be added to their plan and stay on it until you turn 26.

Close Medicare Doughnut Hole: Known as the “doughnut hole” the gap in coverage happens after you’ve already spent money for covered drugs.

Subsidy Assistance to Individuals: People who are not in a government health insurance program, such as Medicaid or Medicare, and do not have access to an affordable plan at work may be eligible for help paying their premiums. The assistance is available to those with incomes of up to four times the federal poverty level.

Eliminate Out-Of-Pocket Costs For Preventive Services: A requirement that private insurance plans cover recommended preventive services without any patient cost-sharing. Research has shown that evidence-based preventive services can save lives and improve health by identifying illnesses earlier, managing them more effectively, and treating them before they develop into more complicated, debilitating conditions, and that some services are also cost-effective.

Medicaid Expansion: One of the major provisions of Obamacare was an increase in the Medicaid income threshold which is used to determine if an individual or family qualifies for the program. Because of this, millions of additional people will now qualify for, and enroll in, Medicaid. The Supreme Court ruling on June 28, 2012 changed the law to allow states to opt-out of expanding access to Medicaid.

Guaranteed Issue: Health insurers will no longer be able to deny coverage based on current or prior health. Depending on enrollment, premiums are likely to trend higher. This could also have a negative impact on the quality of the “risk pool” as those previously unable to obtain insurance will now be eligible for coverage.

Medical Loss Ratio: Insurance companies have to spend at least 80 percent of premium dollars on claims and activities to improve health care quality. 85% in large group markets. The medical loss ratio, or 80/20 rule, helps to decrease the growth in premium rates.

Increase Medicare Payroll Tax on Upper Income: Individuals with earnings above $200,000 and married couples making more than $250,000 saw an increase in the Medicare part A payroll tax of 0.9% on adjusted income over the threshold.

Employer mandate/penalty for large employers: A requirement that all businesses with 50 or more full-time equivalent employees (FTE) provide health insurance to at least 95% of their full-time employees and dependents up to age 26, or pay a fee

Individual Mandate: Unless you qualify for an exemption, you are now required to purchase health insurance or pay a non-compliance penalty. This could cause premiums to fall because younger individuals must purchase coverage and this group is generally in better health. Therefore, younger individuals will be supporting those who are older. However, I suspect this will be a nightmare to enforce as many young people will simply choose not to participate. After all, when you’re young, health insurance is a low priority.

Minimum Standards: Each policy must now meet certain minimum coverage standards called essential health benefits (EHB). In addition, children can remain on their parents’ health coverage until age 26. This may cause premiums to rise if the new minimum standards are higher than existing coverage.

Health Insurance Exchanges: If you do not have insurance through your employer or the government, you will either purchase it through your state’s Exchange (if available), the Federal Exchange, or through what I call “Other.” This could cause premiums to rise as it will add an additional layer of bureaucracy and expense. Also, because government has no profit motive, there is less incentive to operate with the same efficiency as a private sector company.

Low Income Subsidies: Individuals and families with an income less than 400% of the federal poverty level who purchase health insurance through an Exchange will be eligible for a subsidy from the government. The federal poverty level is based on the number of family members and state of residence. This will put tremendous pressure on the federal budget and create an argument for higher taxes. As has occurred numerous times in the past, actual costs will almost certainly exceed projections. Moreover, anytime the government subsidizes a program, its cost tends to increase. Just look at our university system and the staggering cost of a four-year program.

Appendix B: Everybody Loves Obamacare

As we pointed out earlier, Republicans hate Obamacare, even though they would like you to forget that a 1993 health reform bill and Romneycare which, not surprisingly, both have major similarities with the Affordable Care Act. Maybe they were just mad that they thought of it first.

What is most telling the multiple Kaiser Family polls have uncovered something quite interesting about Obamacare when each provision is explained:

Percent who say they have a FAVORABLE opinion of each provision of the law	Total Public	Democrat	Independent	Republican
Create exchanges/marketplaces	78%	91%	79%	66%
Subsidy assistance to individuals	76%	90%	78%	55%
Extension of dependent coverage	80%	87%	76%	76%
Close Medicare “doughnut hole”	79	89	75	73
Eliminate out-of-pocket costs for preventive services	77	81	76	75
Medicaid expansion	75	90	78	52
Guaranteed issue	70	74	70	69
Medical loss ratio	62	68	64	54
Increase Medicare payroll tax on upper income	56	77	54	33
Employer mandate/penalty for large employers	60	78	61	34
Individual mandate/penalty	35	53	31	17

Oh my god look at all that lovely yellow and green! With the exception of the individual mandate (which was found constitutional by a conservative leaning Supreme Court) everybody loves each piece of the Affordable Care Act, even Republicans. Funny thing is when you add up all of these pieces you get… the Affordable Care Act… which people hate. Go figure that one out.

Appendix C: Cost

The total federal savings for Trump care would be $673 billion over ten years. However there is an economic impact of 37 million citizens, including children, elderly, and the poor, who will again be without insurance, putting a drag on the economy that has yet to be calculated.

All costs are calculated over 10 years.

Repealing Obamacare while removing and denying medical coverage to about 10 million people.	$-137 billion
Selling insurance across state lines has no economic impact.	~$0
Extend tax exemptions to individuals would be a cost but there is no good data on how much of a cost. Since so few would be affected we will have to make the assumption of no cost. (But really a cost)	~$0
Converting Medicaid to a block grant program.	$810 billion
Price transparency has no changes from what is currently law today.	~$0
Total	$673 billion

Appendix D: Recent Criticisms

This will address recent criticisms that do not fit into the above article.

2017 Premium Increase

It was reported in October that Affordable Care Act premiums would increase by 22% nationally, a full 1% higher than expected, causing Trump to pitch voters for a special session of Congress “so we can repeal and replace” the ACA, but still not offering a better alternative.

But what Trump neglected to tell his crowds at his rallies that most Obamacare participants won’t feel the full price hike or anything near it. Nationally, 85% of those enrolled receive a tax credit, which is based on the price of the second-lowest cost silver plan and an enrollee’s income. These subsidies put a limit on how much you have to pay.

Enrollees can also use their subsidies to buy lower-priced bronze or silver plans. That will allow more than three-fourths of current enrollees to pick a plan for $100 or less a month on the federal Healthcare.gov exchange.

And in many states, especially ones that fully bought into the Affordable Care Act like California, will see a 2% or less increase, and Massachusetts and Indiana will actually see a drop in prices, while states that were adversarial to a full implementation of Obamacare, like Arizona and Pennsylvania, will see the biggest price hikes, causing the national average to be so high.

obamacare-2017-price-change