A Side-by-Side Comparison of Trumpcare and Obamacare

By Markets Fool.com


Image source: Disney-ABC Television Group via Flickr.

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This wildest presidential election possibly ever is now in the books. Donald Trump, a man who has never held political office and has no military background, stands ready to head to the Oval Office in roughly two months to become the 45th president of the United States.

But what's most notable about this election is that the Republican Party also held on to the majority of both houses of Congress. This essentially means that we have a government unified under a single party, which could allow for new laws to be passed with greater ease compared with the Washington gridlock we've witnessed for many years.

According to President-elect Trump, who released his 100-day plan once he's in office shortly after his victory, repealing and replacing Obamacare (officially known as the Affordable Care Act), the flagship healthcare law of Barack Obama's presidency, sits near the top of his list. With a Congressional majority that has also shared an unfavorable view of Obamacare behind him, a repeal and replace seems quite possible.

Trumpcare vs. Obamacare

What might "Trumpcare," as we'll affably call it, look like next to Obamacare? Let's take a closer look by examining Trump's seven-point plan.

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1. Repeal Obamacare

The first point, which needs no comparison, involves repealing and replacing Obamacare in its entirety. Chances are that any sort of repeal and replace wouldn't involve a sudden loss of insurance for the millions of Americans currently insured through Obamacare. More than likely we'd see a one- or two-year transition away from Obamacare and toward Trumpcare.


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2. Allow insurance to be purchased across state lines

Trumpcare: Under Trump's proposal, consumers would be allowed to shop for health insurance beyond just the boundaries of their state. The idea is that if more health insurers were competing for members, then premiums are less likely to head higher.

Obamacare: Under Obamacare, and the status quo that preceded the Affordable Care Act, insurers tailored their health insurance plans to each individual state (and sometimes even counties and towns). The reason health insurance is sold within a state's borders has to do with demographics and medical access for people within each state.

For example, people living in Wyoming, a state with a sparse population and relatively few specialized medical-care facilities, are expected to pay higher premiums than highly populous states, such as California, where there are more hospitals and plenty of specialized medical equipment. Insurers operating in Wyoming have to take into account the added costs of potentially getting people who live far away from hospitals and other specialized care facilities to the care they need.

3. Full premium tax deductions

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Trumpcare: According to Trump's proposal, one of the primary incentives of purchasing health insurance would be the ability to write off the full amount of your premiums come tax time. Admittedly, this also means wealthier individuals who can afford costlier, but more encompassing, health coverage would get a bigger tax break than lower-income adults who could presumably only afford a lower-cost plan.

Obamacare: Under Obamacare, medical expenses have to exceed 10% of your adjusted gross income before you can claim them as a deduction. Taxpayers need to fill out a Schedule A should they claim this exemption.

4. Emphasize the use of Health Savings Accounts

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Trumpcare: Another component of Trump's healthcare plan involves emphasizing the use of Health Savings Accounts, or HSAs. To be crystal clear, HSAs already exist, so what Trump is proposing is something most Americans already have access to. An HSA is a tax-deferred plan open to individuals and families enrolled in high-deductible health plans. The allure of these plans is that withdrawals can be made at any age for qualifying medical expenses on a tax-free, penalty-free basis.

Obamacare: HSAs are also available right now for Obamacare enrollees, so there's nothing essentially different from what Trump has proposed and what's currently available under Obamacare.

5. Require price transparency from health insurers

Trumpcare: Trump's proposal also vaguely calls for increased pricing transparency from health insurers so that consumers can make more educated purchasing decisions. No specific mention is made as to what aspects of the health insurance buying process would need to be more transparent.

Obamacare: Obamacare does the exact same thing through its online marketplace exchanges. In other words, Obamacare and Trumpcare are identical in calling for better price transparency. It should be noted, though, that having better transparency doesn't mean consumers are using the data afforded to them very well. Well over a million people automatically enrolled in Obamacare last year, possibly signifying that they didn't take the time to shop around for the best deal.


Image source: Getty Images.

6. Block-grant Medicaid to the states

Trumpcare: One of Trump's unique healthcare proposals involves block-granting Medicaid to the states. Trump believes that state and local governments have a far better idea of what their needs are than the federal government, meaning block-granting federal money should result in less waste.

Obamacare: Under Obamacare, states have the right to decide whether they want to accept federal aid to expand their Medicaid programs -- 31 states have chosen to do so. This Medicaid expansion covers people earning less than 138% of the federal poverty level. By 2020, the federal government is expected to phase down its contribution to 90%, putting the onus of the remaining 10% of revenue generation on the participating states.

7. Remove barriers to entry for overseas drug providers

Trumpcare: Finally, Trump's healthcare plan involves breaking down the barriers to entry for overseas drugmakers. It's no secret that pharmaceutical companies rely on high branded-drug pricing in the U.S. to subsidize their ventures in less profitable countries. If Americans were able to look outside the U.S. to, say, Canada, for their pharmaceutical purchases, they may be able to save money.

Obamacare: Obamacare has no specific provision designed to reduce prescription-drug prices. However, its transparent marketplace platform, and the introduction of the risk corridor -- a type of risk-pooling fund that collected money from profitable insurers and redistributed it to money-losing insurers that priced their premiums too low -- were aimed at keeping premium inflation to a minimum.

Three more big differences

Beyond Trump's seven-point healthcare plan, there are three other, potentially major, differences between Obamacare and Trumpcare.


Image source: Getty Images.

First, Obamacare's individual mandate, which is the actionable component of the health law of the land, requires consumers to purchase health insurance or face a penalty come tax time. This penalty, known as the Shared Responsibility Payment, works out to the greater of $695, or 2.5% of your modified adjusted gross income in 2016. If Obamacare is repealed, there would presumably no longer be a penalty imposed for not purchasing health insurance.

Secondly, Obamacare requires insurers to accept all applicants, even if they have pre-existing medical conditions. Repealing Obamacare would, in theory, mean that insurers would be allowed to once again pick and choose whom they insure. It's possible Trumpcare could add in a similar provision, but Trump hasn't suggested that one would be in his health plan.

Finally, Obamacare ensures that Americans earning less than 400% of the federal poverty level (about $47,500) have access to the Advanced Premium Tax Credit (APTC), and that those earning less than 250% of the federal poverty level receive cost-sharing reductions (CSR) if they purchase a silver level plan. The APTC is the subsidy that lowers what low- and middle-income individuals and families pay for their premium, while CSRs help cover the cost of receiving medical care (i.e., deductibles, copays, and coinsurance).

Trump has signaled via his Medicaid block grant proposal that lower-income folks would still be taken care of, but anyone earning between 138% and 400% of the federal poverty level could (note the emphasis) lose the financial assistance they've become accustomed to with Obamacare.

Again, it's important to point out that Trump's proposals could change between now and his first 100 days in office. Even members of Trump's own party in Congress have been critical of his healthcare plan, so some degree of compromise may be in order. But, it's pretty clear that Trumpcare is headed down a markedly different path from where President Obama took healthcare over the past few years.

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Sean Williamshas no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen nameTMFUltraLong, and check him out on Twitter, where he goes by the handle@TMFUltraLong.

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