President Trump Could Kill Obamacare With 1 Simple Action

By Sean Williams Markets Fool.com

It was assumed that once Donald Trump won the Nov. 8 election to become the next president of the United States, the Affordable Care Act, better known as Obamacare, would soon be no more. Trump campaigned tirelessly on repealing and replacing Obamacare.

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Despite promises to repeal and replace, Obamacare is still the law of the land

Yet more than four months into the Trump presidency, Obamacare remains the law of the land, though it may have one foot out the door.

In March, House Republicans introduced the American Health Care Act (AHCA), also dubbed Trumpcare, as the replacement plan for Obamacare. It was met with an unenthusiastic reception and never even came to vote in the House due to lack of support from the president's own party. Right-leaning Republicans believed the bill didn't distance itself enough from Obamacare, while more moderate Republicans opposed it on the grounds of moving too far away from the protections Obamacare offered lower-income families.

Image source: Getty Images.

However, earlier this month the House passed a modified version of the AHCA by an extremely narrow margin (217-213). Once the bill is scored by the Congressional Budget Office, it will presumably move onto the Senate for debate and likely modification.

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But just as we saw with the House in March, there are no guarantees that the Senate will pass this bill. Republicans have 52 Senate seats, and they're facing staunch opposition from Democrats, none of whom voted for the AHCA in the House. This leaves Republicans with a need to unify their entire party in the Senate in order to pass the AHCA. There's simply no guarantee that gets done.

All the while, Obamacare remains the health law of the land.

President Trump could send Obamacare into a death spiral

Yet what you may not realize is that President Trump has the ability to send Obamacare into a death spiral with one simple action -- an action that could convince Democrats to work with Republicans on crafting a workable replacement plan for Obamacare.

Back in 2014, House Republicans sued then-Secretary of the Department of Health and Human Services (HHS) Sylvia Burwell. The allegation of the lawsuit stemmed from the payment of federal funds toward cost-sharing reductions (CSRs) under Obamacare.

Image source: Donald J. Trump official Facebook page. Photo by Shealea Craighead.

CSRs are subsidies that help cover the costs of receiving medical care, such as deductibles, copays, and coinsurance, for lower-income folks. They're specifically for individuals and families earning between 100% and 250% of the federal poverty level, and they only apply to those who purchased silver-level ACA plans. In 2017, of the 12.21 million people who enrolled in Obamacare, 7.05 million (58%) qualified for cost-sharing reductions. Overall, 71% of ACA-purchased plans were in the silver tier.

The House Republicans' argument in their lawsuit was that Congress is the only entity that can apportion funding of this nature, and that CSR subsidies were never properly apportioned. In May 2016, District of Columbia Judge Rosemary Collyer agreed with Republicans, but immediately stayed her judgment on the grounds that the Obama Administration was likely to appeal (which it did).

Today, the case continues to drag on, but with one noteworthy change. With Trump as president, Republican Tom Price has become the new Secretary of the HHS. In a way, it means House Republicans are sort of suing themselves. It also means that President Trump could, at any time, drop the appeal and have Collyer's judgment go into effect. Since Republicans control both houses of Congress, it's unlikely the roughly $9 billion to $11 billion doled out annually in CSR subsidies would be approved.

Here's what this means for Obamacare enrollees

What does this mean for a majority of Obamacare enrollees? If the appeal were dropped, millions would continue to receive subsidies that could significantly reduce their monthly insurance premiums. However, with CSR subsidies gone, lower-income folks would probably find it practically impossible to cover their deductibles, copays, and coinsurance costs. It would render their coverage useless. Either these consumers would choose to skip preventative checkups and illness and not head to the doctor for financial reasons, or they'd go anyway and simply not pay their bills. This would result in higher loss write-offs for hospitals and doctors' offices, which will eventually get passed back to consumers in the form of higher medical care prices and insurance premiums.

Image source: Getty Images.

Would Trump "go nuclear" on Obamacare in order to coerce an agreement on the AHCA? It's tough to tell, but this is a very unconventional presidency.

On one hand, Trump has pledged a health plan that would work for all Americans, and pulling the plug on a subsidy that more than 7 million low-income individuals and families count on wouldn't be seen in a good light.

On the other hand, Trump needs to find a way to bridge a divisive partisan gap on Capitol Hill, and this unpopular action may effectively do just that.

However, if Trump were to go this route, he may find quite a bit of opposition from the insurance industry. A number of insurers, like Anthem (NYSE: ANTM), centered their individual ACA-market business on government-sponsored patients. Anthem acquired Amerigroup back in 2012 to get a sizable piece of the Medicaid expansion market, and it's since thrived on its members receiving government subsidies, including CSRs. While these subsidies don't offer the same juicy margins as private payers, they're nonetheless a guaranteed payment, which insurers tend to like.

Trump's final decision on CSRs is going to have a major impact on the future of healthcare in America. The only thing we can do now is simply wait to see if the AHCA advances in the Senate, and if Trump and Congress approve ongoing funding for CSRs.

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Sean Williams has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.