Yes, Trumpcare Could Be Successful -- Here's How

By Markets Fool.com


Image source: Disney-ABC Television Group via Flickr.

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With the elections now in the rearview mirror, America prepares to appoint career businessman Donald Trump as the 45th president of the United States in January. With Trump's presidency, and a Republican-led Congress, comes the potential for big changes on Capitol Hill. One of those major changes involves repealing and replacing the Affordable Care Act, which is more commonly known as Obamacare.

Obamacare's mixed results

On one hand, Obamacare has done a good job of lowering the uninsured rate. According to the Centers for Disease Control and Prevention, the uninsured rate at the halfway point of 2016 was just 8.9%, which compares very favorably with the 16% uninsured rate in the quarter preceding Obamacare's implementation.

Obamacare has also arguably made the health insurance buying process far more transparent than it's ever been. Consumers can compare plans online, and they have more information at their fingertips than ever before.

However, Obamacare has had its drawbacks. Insurers have often criticized that the program isn't sustainable, with UnitedHealth Group (NYSE: UNH) and other national insurers regularly losing money on their ACA plans despite premium increases. For 2017, UnitedHealth Group pulled out of 31 of the 34 states it had been offering coverage in, while Aetna (NYSE: AET) and Humana (NYSE: HUM) reduced their county-based coverage by nearly 70% and 90%, respectively. We also witnessed three-quarters of the approved healthcare cooperatives, which offer low-cost insurance options, go out of business because of unsustainable losses. The result for the consumer is fewer choices and higher premiums.

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In fact, the price for a benchmark silver plan (the average price of the second-lowest cost silver plan) is headed higher by 25% across the U.S. in 2017. Though consumers receiving subsidies are mostly shielded from these premium increases, middle-class families are not.


Image source: Getty Images.

Trump's seven-point healthcare plan

Trump has gone on record as offering a seven-point plan to repeal and replace Obamacare, which has been covered in greater detail previously. The main tenets of his healthcare plan are as follows:

  1. Repeal Obamacare
  2. Allow health insurance to be purchased across state lines
  3. Offer full premium tax deductions
  4. Emphasize Health Savings Accounts
  5. Require price transparency from health insurers
  6. Block grant Medicaid to the states
  7. Remove barriers to entry for overseas drug providers

As you might have rightly imagined, Trump's plan has taken a lot of criticism. For instance, the tax deduction benefits favor those who can afford more encompassing and costly health insurance. His plan also doesn't address what might happen to the millions of Americans currently receiving financial assistance with the Advanced Premium Tax Credit, cost-sharing reductions, or even Medicaid through the Medicaid expansion in 31 states. It's possible that millions of Americans who may have never had access to medical care prior to Obamacare's implementation could once again be on the outside looking in if Trumpcare becomes law.

But, on the other end of the spectrum, there are a number of ways Trumpcare could improve the U.S. healthcare landscape. Let's take a brief look at how Trumpcare could be a positive for healthcare in America.


Image source: Getty Images.

Here's how Trumpcare could be a positive for healthcare in America

To begin with, Trumpcare aims to break state barriers and allows consumers to potentially purchase health plans from outside of their state. This would be particularly beneficial for Americans who live in rural and less-populated parts of the country where access to medical care may be sparse and premiums paid for health insurance are often high. If consumers were allowed to shop from a considerably larger pool of plans, the thinking is that the competition created for these tens of millions of customers could help put a lid on premium inflation.

Speaking of inflation, another component of Trumpcare -- removing barriers to entry for overseas drug providers -- could reduce the rapidly rising price of prescription drugs. It's no secret that pharmaceutical companies rely on the U.S. market and its inherent drug-pricing advantages to reap hefty profits so they can finance their ventures into far less profitable, or even unprofitable, emerging markets. Trump would advocate allowing consumers to purchase their medications from overseas drug manufacturers, such as those in Canada, in order to save money.

Thirdly, Trumpcare might be able to cut down on the "waste" in Washington. Block-granting Medicaid to the states themselves essentially means allowing each state to decide how federal funds would get spent. The hypothesis here is that the federal government is never going to have as good an understanding of where federal funds for Medicaid should be spent at the state level as do the individual states and counties themselves. Block-granting Medicaid could reduce fiscal waste for the program, allowing it to work for more low-income individuals and families.


Image source: Getty Images.

Another aspect of Trumpcare that could be a positive is that it puts more disposable income back into the pockets of insured Americans. Allowing for a full premium tax deduction could encourage consumers to enroll, and it'll help reduce their tax liability regardless of whether they're buying a minimal coverage plan or an encompassing plan.

Finally, repealing Obamacare also means getting rid of the medical device excise tax, which is a 2.3% tax taken from revenue, not from net profits. Though the medical device excise tax was suspended nearly a year ago for a two-year period, and it was never designed to be a big revenue generator for Obamacare, it has been pinpointed as a barrier to innovation in the device sector. Repealing Obamacare means the end of the medical device excise tax, which could spur device innovation within the United States.

You should understand that Trumpcare is by no means perfect as it stands now, and it may require a compromise with Congress before it's considered for implementation. But, even given its criticisms, Trumpcare may have a number of positives to bring to America's healthcare landscape.

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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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