Trumpcare, Not Obamacare, Could Be a Job Killer

By Sean Williams Markets Fool.com


Image source: Disney-ABC Television Group, Flickr.

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In less than one week's time Donald Trump is set to become the 45th president of the United States, which seemed mighty unlikely about a year and a half ago when campaigning began. While his agenda once in office is seemingly a mile long, at the top of the list appears to be the repeal of the Affordable Care Act, which you probably know best as Obamacare.

Obamacare isn't well liked, but it's worked

Obamacare isn't a very well-liked health law, nor has it ever been. According to the Kaiser Family Foundation's (KFF) Health Tracking Poll, which is done on a nearly monthly basis, you can count on two hands how many months since March 2010, when the ACA was signed into law by President Obama, more respondents had a favorable view, rather than unfavorable, of Obamacare.

There are multiple aspects of the law that consumers have simply not welcomed. For example, being penalized for not purchasing health insurance hasn't sat well with consumers. The Shared Responsibility Payment (SRP) has increased from the greater of $95 or 1% of modified adjusted gross income (MAGI) in 2014 to the greater of $695 or 2.5% of MAGI in 2016. Based on H&R Block's estimate of a $150 average penalty in 2014 to KFF's estimated average household penalty of $969 in 2016, consumers without health insurance can't be too happy about this penalty come tax time.

The American public has also been irritated with insurer networks. When Obama touted the rollout of the ACA, he stated that consumers would be able to keep their doctors and their plans. However, this was a decision that insurers would have to make. Many insurers shut down some of their non-ACA-compliant plans, pushing millions of people into new plans and forcing them to pick a new primary care physician.

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Image source: Getty Images.

However, Obamacare has also successfully completed the job it was intended to do: It reduced the uninsured rate in America. According to the Centers for Disease Control and Prevention, 8.9% of adults (inclusive of Medicare enrollment) were uninsured by mid-2016, down from 16% before the ACA was implemented.

"Trumpcare" could easily become the new norm in America

Despite its numerical success, Trump and congressional Republicans plan to move quickly to repeal Obamacare and implement a new health plan, which will likely bear the moniker "Trumpcare." Though it remains to be seen what Trumpcare might look like, we can probably get a general idea based on Trump's seven-point health reform plan released during his campaign last March.

While you can read the seven-point plan in more detail, here's a quick summary of what you might expect:

  1. Repeal Obamacare
  2. Allow health insurance to be sold across state lines
  3. Full health-premium tax deductions for individuals
  4. Promote the use of Health Savings Accounts
  5. Require better price transparency from health insurers
  6. Block grant Medicaid to the states
  7. Remove barriers to entry for overseas drug producers

As you can see from Trump's plan, it mostly involves the idea of boosting free market competition and removing federal government intervention. For example, block-granting Medicaid to the states is probably the most popular component of Trump's seven-point plan. Essentially, it means the federal government would stop trying to dictate where Medicaid funds would go and allow the states, which probably have a better idea of where the money should be spent, to handle that objective. Block-granting Medicaid could save money and allow federal Medicaid dollars to stretch further.


Image source: Getty Images.

It's likely that Trump's health reform plan and Congress's will be melded together in the coming weeks to formulate a solution. However, even if one isn't available, it appears that congressional Republicans and Trump stand at the ready to remove critical aspects of Obamacare through a process known as reconciliation (i.e., removing the aspects of Obamacare that affect the federal budget). In perhaps a month or less, Obamacare's SRP and subsidies could be on their way out.

Bet you didn't see this coming

However, repealing Obamacare and instituting Trumpcare could have an interesting consequence.

When Obamacare was approved, it was believed by quite a few industry analysts (myself included) that it would be a job killer. The employer mandate -- which imposes fines of $2,000 to $3,000 per full-time-equivalent employee who isn't offered health coverage options or who has to pay too much of his or her income to cover premium expenses -- was seen as a deterrent to job creation. Rather than face possible fines, it was believed that businesses would either reduce their workforce to part-time or simply lay off workers to combat rising healthcare expenses.

In reality, neither of these scenarios came to fruition. A Kaiser Family Foundation report found that Obamacare led 7% of employers with 50 or more full-time equivalent employees to bump part-time workers to full-time, whereas just 2% did the opposite. Low interest rates and an improving economy can take some of the credit, but Obamacare was certainly not a job killer based on this report.


Image source: Getty Images.

Trumpcare, though, could be a job killer. A new report from the Milken Institute School of Public Health at the George Washington University and the Commonwealth Fund estimate that the repeal of Obamacare could cost almost 3 million jobs by 2021. The reason? The lack of federal funding is expected to cut gross state product by $1.5 trillion between 2019 and 2023, meaning there will be less money to spend on hiring.

Here's what's really interesting: Only about a third of the nearly 3 million job losses are expected to be in the healthcare sector. The remainder will come from other industries as consumers are forced to spend more on their healthcare and have less disposable income to spend elsewhere (e.g., food, clothing, entertainment).

It is possible that the number of estimated job losses could be overstated. For instance, Trump's plans to implement individual and corporate income tax reforms should, in theory, put more money into the pockets of consumers and businesses, which may offset some of the aforementioned $1.5 trillion in reduced gross state product from the elimination of federal subsidies. Nonetheless, without a firm plan to replace Obamacare, around 20 million people could lose their health insurance, and around 3 million people could also eventually lose their jobs.

Trump has a monumental challenge ahead of him, and the next few months will tell the tale of where healthcare in America heads next.

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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.The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has adisclosure policy.