If Donald Trump Sacks Obamacare, What Happens Next?

By Markets Fool.com

Image source: Flickr user Gage Skidmore

Continue Reading Below

Donald Trump is adamant that he'll repeal and replace Obamacare if he's elected President, and earlier this week, he released his plan to do it. The real estate mogul's "Trump-care" includes seven key proposals that he believes will make healthcare in America great again.

First, a bit of background
Donald Trump isn't known for being shy when it comes to sharing his opinion, so it's not surprising he's had plenty to say about his disdain for the Affordable Care Act. According to The Donald, Obamacare is a "failure," a "disaster," anda "catastrophe."

Trump believes Obamacare can't rein in the never-ending increase in healthcare spending, particularly in regard to health insurance premiums and deductibles, and that instead, Obamacare is significantly increasing healthcare costs.

There's evidence he may be right.

According to the Centers for Medicare and Medicaid Services, the typical American spent $7,700 on healthcare in 2007, $9,596 on healthcare in 2014, and will spend an about $15,000 on healthcare in 2023, and a big chunk of that increase in spending is due to runaway costs associated with skyrocketing insurance premiums and deductibles.

Continue Reading Below

For example, the average employee forked out $4,955 for his employee-sponsored family health insurance last year, up 4.4% from 2014, and over the past five years, health insurance deductibles have increased at a rate that is seven times faster than the growth in employee wages.

That's an eye-popping revelation.

Admittedly, increasing premiums and deductibles are likely the result of providing healthcare to a larger, longer-living America (not Obamacare alone) but with no end in sight to rising healthcare costs, there's certainly reason to wonder if another solution might be better.

Replacing Obamacare
In a 60-Minutesinterview last fall, Trump said his plan to replace Obamacare would include free market solutions, but that no Americans would be left without access to healthcare.

In that interview, Trump said he'd "make a deal with existing hospitals"to care for low-income Americans and that he'd break down regulatory hurdles obstructing competition across state lines.

Although the plan he released this week doesn't discuss the role he hopes hospitals may play, it does call for inter-state competition, as well as other key changes. Overall, Trump's proposes:

  • Repealing Obamacare and removing the health insurance requirement.
  • Maintaining state control over healthcare plans, but removing roadblocks to cross-state competition.
  • Making health insurance premiums tax deductible for all Americans.
  • Expanding the use and portability of health savings accounts.
  • Requiring price transparency for healthcare services, products, and medicine.
  • Providing block grants to states to pay for Medicaid.
  • Allowing for the importation of qualified medicine from other developed markets.

Ditching the health insurance requirement would be welcomed by young, healthy Americans, but it could cause problems for insurers if they're still required to insure everyone, including those with pre-existing conditions. That's because premiums from healthy members offset the cost of care given to those who are sick or injured.

Trump's vision for a more open national marketplace for private insurance plans could eliminate some bureaucratic costs and force insurers to compete more fiercely for customers, both of which could possibly help keep monthly premiums in check. However, Trump's plan also says that plans offered across state lines would have to conform to each individual states requirements, so some bureacracy would likely remain.

Employers already deduct their health insurance costs (some employers also offer plans that allow employees to make their premium payments with pre-tax dollars), so there's precedent for Trump's plan to make insurance premiums tax deductible for everyone. A tax credit, however, might be a better option because tax deductions simply reduce taxable income while tax credits reduce a taxpayer's final tax bill dollar for dollar. Regardless, a tax deduction would lower Americans' total annual healthcare costs, and that's a good thing.

Similarly, expanding the value of health savings accounts (HSAs) can save Americans money too. HSA's are funded with tax-deductible contributions that can be used to pay out-of-pocket healthcare expenses, like co-pays. Allowing money contributed to a HSAs to accumulate over time and providing the opportunity to pass along HSAs to heirs penalty-free as part of a person's estate could increase their use. Also, favorable changes to HSA rules could save people more money by increasing the viability of low-premium insurance plans that have higher out-of-pocket costs.

Price transparency is a long-standing goal of healthcare reform, but the industry has been frustratingly slow at implementing it. Giving consumers greater insight into the costs of lab services, X-rays, and other healthcare, could lead to significant cost savings tied to shopping around. Similarly, allowing for the importation of medicine from other developed markets, like Canada, should offer cost-savings too.

Trump's plans to reform Medicaid, however, may be more contentious. Medicaid is a social safety net for low-income Americans, and the program is currently run on a state-to-state basis with the federal government splitting the bill. Switching to block grants could force states to reduce eligibility for Medicaid to cut costs, which could lead to millions of Americans losing coverage.

Currently, Medicaid eligibility varies widely from state to state. For example, adults without dependents only qualify for Medicaid in Texas if their income is below 18% of the federal poverty level. Meanwhile, states that adopted the Medicaid expansion provision of Obamacare allow people to sign up for Medicaid if they earn up to 138% of the federal poverty level. Under a block grant system, states with the 138% eligibility requirement could end up adopting stricter guidelines to avoid busting their state budget.

Looking forward
Trump's business-friendly mind-set suggests he'll err on the side of competition, rather than regulation, to keep healthcare costs in check. That approach resonates with supporters, but it's admittedly similar to the failed policies that preceded Obamacare. No one knows if Trump will win the Presidency, and there's no guarantee that if he does win, his plan will pass Congress. Nevertheless, the changes Trump recommends are significant enough that everyone should stay tuned.

The article If Donald Trump Sacks Obamacare, What Happens Next? originally appeared on Fool.com.

Todd Campbell has no position in any stocks mentioned. Todd owns E.B. Capital Markets, LLC. E.B. Capital's clients may have positions in the companies mentioned. The Motley Fool recommends UnitedHealth Group. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.