TrumpCare could work. Here's how.
Trump can succeed where Obama failed on health care
President-elect Donald Trump may well fix America's broken health care system. And for that, you can thank Trump's pick to lead the Department of Health and Human Services: Rep. Tom Price (R-Ga.).
Price, an orthopedic surgeon, isn't perfect. But he has clear ideas about health care reform — and is ready to cure some of the worst illnesses of ObamaCare.
ObamaCare promised near-universal coverage while lowering premiums without jeopardizing existing plans or providers. Remember President Obama's "If you like your doctor, you can keep your doctor, period. If you like your plan, you can keep your plan, period."?
In reality, ObamaCare will account for $1.8 trillion in new spending over 10 years. Yet it will cover only 31 million of the 48 million uninsured. That's partly because more employers have dumped their workers on ObamaCare than originally anticipated — and partly because 8 to 9 million fewer people have enrolled in the exchanges than expected.
The big reason why the exchanges aren't able to lure customers is that median premiums have skyrocketed 116 percent in the last four years, notes Avik Roy of the Foundation for Research on Equal Opportunity. Rising premiums price out too many young and healthy people, especially if they aren't sufficiently poor to qualify for big subsidies. This has left the exchange pools with older and sicker patients, which, in turn, leads to more premium increases, which prices out more healthy people, and so on and so forth. Some fear that ObamaCare may have already entered an irreversible death spiral of adverse selection.
Liberals want to prop up ObamaCare by throwing more money at insurance companies (by extending the risk corridor and reinsurance programs beyond their 2016 expiration date) while forcing more people to buy coverage through harsher penalties. This would be both pricey and draconian, while doing nothing to actually bend the spending cost curve, another failed ObamaCare promise.
Price, who authored a 250-page ObamaCare replacement bill called the Empowering Patients First Act, has a better answer. There is much to quibble about in his plan. (For example, his proposal to end defensive medicine by having a federally empowered board prescribe best practices that would provide doctors a safe harbor from lawsuits is an attack on patients' rights.) But he gets the fundamentals right.
Price understands that the reason 48 million Americans lacked health insurance before ObamaCare even though the country spent 16 percent of its GDP on health care — more than any industrialized country — was a combination of two things: One, half of all Americans received a blank check to consume virtually limitless health care via lavish tax-exempt employer plans. And, two, too many mandates and regulations on providers and insurers prevented them from innovating new and cheaper ways of delivering care. The limitless demand and the limited supply was a recipe for inflation that left coverage out of the reach of working-age Americans who didn't get employer insurance and didn't qualify for Medicaid.
The Price plan attacks both those problems.
For starters, Price would deregulate the medical industry, scrapping ObamaCare's many mandates on insurance companies, save the one concerning pre-existing conditions. (Insurers won't be allowed to turn away patients, no matter how sick, if they have maintained continuous coverage. And those who haven't maintained coverage will be required to pay 150 percent of the normal rate for two years.) Price would also stop ordering insurers to cover a lavish set of minimum benefits to qualify to sell their plans on exchanges.
Furthermore, Trump's new HHS secretary would cap tax deductions for work-based insurance coverage at $8,000 for individuals and $20,000 for families. This is by no means stingy, but over time it would save the government money. This money — plus the money generated when ObamaCare's subsidies are scrapped — would be used to extend new, universal, age-adjusted tax credits to all Americans: $1,200 for individuals between 18 and 35, and $3,000 for those over 50.
These credits are less generous than the subsidies many lower-income folks receive under ObamaCare, to be sure. But bear in mind that they will be available to everyone, even middle-income Americans, many of whom ObamaCare leaves high and dry. Their bigger virtue, however, is that they eliminate the root cause of health care haves and have-nots in America: the differential tax treatment of employers and individuals.
The Price plan would scrap ObamaCare's individual mandate. That means no one would be forced to buy coverage against their will. The Republican's wager is that the availability of "free" tax credits combined with cheap plans will prompt the young and healthy to voluntarily buy coverage, leading to more actuarially sustainable risk pools for insurers. He plans to sweeten the deal even further for young individuals and families through more generous Health Savings Accounts.
These accounts allow people to set aside a lump sum of money tax-free every year to pay for high-deductible plans as well as use toward other out-of-pocket medical expenses. Any leftover funds can be rolled over into subsequent years. Price plans to offer a $1,000 one-time refundable tax credit to encourage more people to set up these accounts and let families stash away more than the current $6,750 limit. And because leftover funds accumulate over the years, patients would get an incentive to limit their own medical consumption, bringing down costs over time without government rationing. Equally importantly, because patients will be paying out of pocket, they'll be more price conscious, creating incentives for providers to come up with innovative ways to deliver cost-effective medicine. Uber for health care, anyone?
ObamaCare enthusiasts insist that the Price plan will cover fewer people than their beloved law because it would scrap Medicaid expansion and block grant the program to states, which would be free to eliminate or scale back coverage for swaths of people. In addition, Price's scheme to put sick people who can't buy coverage in the individual market into high-risk pools paid for by the government is dicey, critics say.
Some of these objections are fair. The Price plan certainly won't deliver nirvana. But then, neither has ObamaCare. In fact, an imploding ObamaCare will jeopardize the coverage of far more patients than a workable alternative. And Price's plan relies less on sticks and more on fixing the incentives so people purchase coverage voluntarily and consume it prudently.
Price's No. 1 job after assuming office will be to make everyone see that and move full speed ahead to repeal ObamaCare and replace it with something resembling his plan. Let's hope he does.