Image source: Marc Nozell, via Flickr.
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It's fairly safe to say that big changes are coming to Washington in less than two months. After Donald Trump's surprising victory on Nov. 8, and with Republicans hanging onto a majority in both houses of Congress, we're on track to have a government unified under a single party. It remains to be seen if there'll be any sort of sweeping reforms, but having a government with one party clearly in control should make it considerably easier to pass legislation.
Donald Trump, for his part, put out a laundry list of things he'd like to accomplish within his first 100 days in office following the election. This included cleaning up Washington by proposing term limits on all members of Congress, renegotiating NAFTA, filling the vacant seat on the U.S. Supreme Court, reforming individual and corporate income tax laws, and repealing and replacing the Affordable Care Act, just to name a handful of the actions he proposed.
Here's what Americans want Trump to focus on most
But what do American voters care about most? That was the question posed to nearly 1,800 Americans by Reuters/Ipsos in the days following the election. While 14% suggested that immigration reform should be Trump's top priority, and 16% said jobs, the issue that Americans clearly care about most is healthcare, with 21% of the vote.
To understand why Americans are so frustrated with the current state of healthcare, we only need to look at some changes in Affordable Care Act insurance plans in the upcoming year compared to 2016. For example, the national benchmark plan, which is the second-lowest-cost silver plan, is slated to rise by 25% in 2017. That's some of the highest premium inflation the country has ever witnessed. We're also seeing a discernable increase in deductibles, with a HealthPocket analysis finding a 15% increase in deductibles for silver plans, which are the most popular. The "affordability" component of the Affordable Care Act is most certainly being challenged.
Image source: Getty Images.
Here's why Obamacare is struggling
Why is the ACA -- more commonly referred to as Obamacare -- running into problems?
Part of the blame can be traced to some very poor initial estimates. The Congressional Budget Office at one time expected up to 21 million people to be enrolled by 2016. This year's CBO estimate stands unchanged at just 10 million marketplace enrollees. The CBO estimates were too high from the get-go, and insurers are fighting for a much smaller pie than expected.
Image source: Getty Images.
At the same time, Obamacare enrollees have been shown, via a Blue Cross Blue Shield Association meta-analysis, to be costlier than employer-based members by about 22%. Remember, before Obamacare was introduced, it was commonplace for insurers to pick and choose who they wanted to cover. Under Obamacare, insurers can't turn away people with preexisting conditions. This means millions of people who'd previously been shut out of the system are now free to join; for insurers this has led to substantially higher costs than anticipated.
We've also witnessed a lukewarm reception from younger, healthier adults, who are vital to the success of Obamacare. The individual mandate is the actionable component that penalizes consumers for not purchasing health insurance. This prospect of being penalized (the greater of $695 or 2.5% of your modified adjusted gross income in 2016) was expected to coerce healthier people to enroll. However, it hasn't had its intended effect. According to the Kaiser Family Foundation, the Shared Responsibility Payment (the official name of the penalty for not purchasing health insurance) is estimated at $969 in 2016, whereas the cost of purchasing even a cheap bronze plan could run between $2,400 and $3,600 annually. It's simply cheaper for healthier young adults to remain uninsured.
When the dust settled, three national insurers had drastically pulled back on their ACA-based coverage. The largest insurer in the country, UnitedHealth Group (NYSE: UNH), cut back from offering coverage in 34 states this year to just three in 2017, while Aetna (NYSE: AET) and Humana (NYSE: HUM), which have had their merger blocked by regulators, are reducing their county-based coverage on a year-over-year basis by nearly 70% and 90%, respectively.
Less choice and a perceived-to-be unsustainable platform are pushing prices rapidly higher, and consumers making more than 400% of the federal poverty level ($47,520) are being exposed to the full brunt of the premium increases.
Image source: Disney / ABC Television Group via Flickr.
Donald Trump's vision for healthcare in America
Trump made a number of pledges while on the campaign trail, with one of his most frequent being his seven-point plan to reform healthcare in America. We've previously covered Trump's seven-point healthcare plan in considerably more detail, but here it is again as a quick refresher:
- Repeal and replace Obamacare
- Allow health insurance to be purchased across state lines
- Offer full premium tax deductions
- Promote the use of Health Savings Accounts
- Require health-insurer price transparency
- Block-grant Medicaid to the states
- Allow U.S. citizens to purchase drugs from overseas providers
Trump's healthcare plan offers a number of potential benefits to the American public. Arguably the most intriguing proposal is block-granting Medicaid to the states, which could substantially reduce waste and make Medicaid dollars go further for low-income individuals and families. The idea behind block-granting money is that officials in individual states will always have a better idea of where money should be spent within their states than the federal government. Thus, removing the federal government from the oversight portion of the equation should lead to more efficient Medicaid spending.
Allowing consumers to fully deduct their healthcare premiums could also be viewed as a positive. A full-premium tax deduction essentially allows consumers to act like corporations, putting more money back into their pockets.
And let's not forget that repealing Obamacare also removes that pesky medical-device excise tax of 2.3% on medical-device manufacturers. Even though it's been suspended for two years, eliminating this tax in its entirety could be a boon for innovation.
Image source: Getty Images.
Trump's healthcare plan isn't perfect, either
However, "Trumpcare" comes with its own set of potential flaws. For example, even though consumers receive a full tax deduction for their premiums, Trump's plan is geared to help well-to-do people who can afford higher-priced coverage the most. It may not do much to incentivize lower-income individuals and families to enroll, especially if there's no financial subsidy to help assuage monthly premium costs as there is under Obamacare.
Trumpcare's proposal to allow consumers to purchase branded therapies from overseas markets is also a possible pipe dream. Change of this magnitude would require big reforms at the Food and Drug Administration. Furthermore, it completely ignores some of the main reasons why prescription-drug prices are going through the roof, such as long periods of patent protection in the United States.
Image source: Getty Images.
But the biggest concern is that it could spike the uninsured rate higher. Even if Trump were to keep a select few provisions from Obamacare, such as the mandate requiring insurers to accept new patients and allowing children under the age of 26 to stay on their parents' plan, millions of people would probably lose their insurance. Without a penalty to coerce enrollment, and a subsidy to help lower-income individuals and families pay for their monthly premiums, the uninsured rate could rise substantially. This would be a bad outcome for hospitals, which are counting on insured patients to keep the lights on. Treating uninsured people usually means a lower potential for revenue collection.
Healthcare is what the American public wants Trump to focus on once in office, but it appears some tweaking may be needed if Trumpcare is to be successful.
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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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