Image source: Flickr user Jamelle Bouie.
Election season is beginning to kick into high gear with Super Tuesday now in the rearview mirror and many of the remaining candidates introducing their plans to revitalize economic growth and protect our country. However, one debate that sits near the top of the watch list for most Americans is what might happen to healthcare as we know it now.
Barack Obama's legacy as president will likely be the passage and implementation of the Affordable Care Act, which is better known as Obamacare. Since its implementation, Obamacare has enrolled about 12.7 million people (as of the end of the most recent open enrollment period), and Medicaid expansion in 31 states allowed another 13.5 million people to obtain health insurance based on data from Oct. 2015. Measured by these statistics alone, it can be argued that the program was a success.
However, none of the six remaining presidential candidates (two Democrat, four Republican) are likely to leave Obamacare as it currently stands. A vast majority have called for a complete overhaul of the healthcare system, which means direct changes to you as an individual, and potentially as an investor.
Donald Trump's sweeping seven-point health plan
Donald Trump released his health reform plan earlier this week, and the rollback of Obamacare represented just one of the seven points he hit on when outlining his health plan. Let's briefly look at Trump's health plan vision for America, and then we'll get into the specifics of what benefits and flaws it may have.
Image source: Flickr user Day Donaldson.
1. Repeal Obamacare: This comes as absolutely no surprise considering that Trump has been hyper-critical of Obamacare since its implementation. But this is just the beginning.
2. Allow health insurance to be sold across state lines: As it stands now, consumers can only purchase insurance and compare plans within the state they reside. Trump wants to break down state lines and allow consumers to compare plans across the U.S., regardless of state. Doing so should increase competition and would presumably help control premium cost inflation.
3. Full health-premium tax deductions for individuals: One of the more interesting proposals from Trump would allow individual taxpayers to act like a corporation and take a full deduction on premium payments made when filing their tax return.
4. Allow individuals to use HSAs: Fourth, Trump wants to emphasize the use of Health Savings Accounts, or HSAs, which can be used for qualified medical purposes, and can be withdrawn tax-free. According to Trump's plan, upon death, money in an HSA would be passed on to the deceased's heirs.
5. Require price transparency from healthcare providers: This component would be similar to what we have now with Obamacare's marketplace exchanges in that it would make price comparisons very easy to understand and allow consumers to make an educated decision regarding their health plan purchase.
6. Block grant Medicaid to the states: Sixth, Trump would advocate for block grants to every state. Block grants are federal dollars provided to state and local governments for a wide variety of programs. The idea here is that local and state governments could manage their Medicaid programs (and reduce waste) far better without federal intervention.
7. Remove barriers to entry into free markets for overseas drug providers: This final point would allow consumers to actively look overseas for pharmaceutical products that are cheap and effective. Buying pharmaceutical products from Canada or other developed countries could result in substantially lower costs for individuals and insurers.
Image source: Flickr user Joi Ito.
Benefits and weaknesses
We've already covered a number of ways that Trump's plan, while broad, could be good for the American people. For instance, buying insurance across state lines would open up the competitive landscape for the American public and immediately force healthcare providers to be more competitive with one another. More competition could equate to more choice and lower premium cost inflation for the consumer.
The ability to look overseas for pharmaceutical products could also be a major boost to the consumer and insurers. Drug developers use their pricing power in the U.S. as a means to subsidize emerging and underdeveloped markets around the world. However, if the U.S. consumer had access to other developed markets with safe drug practices they, and the insurers who cover them, could save a pretty penny.
Block grants could be another smart move to eliminate waste caused by federal overregulation at the state level.
On the flipside, Trump's health reform plan might fall short in a number of areas. For example, no mention is made of consumers with pre-existing conditions, and there's nothing that exactly defines the plan as universal. Combine this with the fact that the repeal of Obamacare would mean that up to 26 million people could lose their health insurance (12.7 million enrollees via Obamacare marketplace exchanges and some 13.5 million Medicaid enrollees between mid-2013 and Oct. 2015), and Trump's plan creates a potentially disruptive scenario for the entire healthcare sector.
Another deficiency is Trump's discussion of the use of HSAs. To begin with, Trump's plan is discussed as if HSAs aren't an option for today's consumer (because they are). But most importantly, it doesn't explain how HSAs would be expanded to the benefit of consumers. In 2016, the individual employer/employee contribution limit is $3,350, and $6,750 for families, with a $1,000 catch-up for people ages 55 and up. Would Trump expand these limits? It's impossible to tell, as the outline on HSAs is very vague.
Image source: Flickr user Ryan Ritchie.
Additionally, allowing consumers to buy policies out of state might not create as desirable an effect as you'd initially think. For instance, there's a reason why premiums in Alaska and Wyoming are significantly higher than the rest of the nation. There aren't as many hospitals in either state, making it tougher for certain residents to get medical care, and a smaller population often means hospitals don't buy specialized equipment, meaning certain cancer patients could be sent out of state for treatment. That can be expensive for the insurer. Breaking down state barriers would average premium costs across the nation, which would include Wyoming and Alaska, creating a baseline premium cost that could be higher than many people realize, even with added competition and price transparency.
One glaring flaw in Trump's health reform proposal
But, there's one giant flaw in Trump's proposal that stands head and shoulders above the rest -- this being his proposal to allow full tax deductions to individuals based on the amount of premium paid.
Image source: Flickr user LaDawna Howard.
The issue is this: Trump's plan rewards the wealthy while punishing the less economically fortunate. The deductions are based entirely on the amount of premium paid, meaning a well-to-do individual that buys an all-encompassing plan for his or her family is going to be able to write off every cent while a poor college student that's pinching pennies would only be able to deduct the small amount paid for their catastrophic plan. Instead of providing help to the lower-income classes that need it most, Trump's plan would provide a juicy, regressive, deduction.
Let's not forget that the repeal of Obamacare also means that Medicaid expansion would be no more. This would expose consumers and families making between 100% and 138% of the federal poverty level in 31 states to the brunt of full premium costs. Even if these individuals could afford health insurance, the tax deduction would be mostly negligible.
Based on an initial take, Trump's plan, with no safeguards for lower-income families and patients with pre-existing conditions, looks as if it could result in millions of Americans losing access to healthcare, and premium costs overall heading higher. Keep in mind that even though Medicaid patients generate lower margins than private payers for insurers, their presence adds revenue stability and modest profitability. You remove most of these 13-plus million people from the healthcare system and it's likely that premiums would rise considerably. And, if that happens, we'd see the rich get juicy tax benefits while the less fortunate struggle to purchase insurance.
To be fair, this is just an initial take, and it could be way off. Trump is likely to offer more detailed plans in the coming weeks and months, and some of these aforementioned concerns may be answered then. But as it stands now, I'd be concerned as both a consumer and investor as to what might happen to the healthcare industry if Trump ascends to the Oval Office and enacts his healthcare plan.
