It's official: Donald Trump is now in the Oval Office as the 45th President of the United States, and now-former President Barack Obama's signature healthcare plan, the Affordable Care Act (ACA), is living on borrowed time.
Obamacare never won over consumers
The ACA, which is more commonly known as Obamacare, hasn't been a particularly popular law since its passage in March 2010. According to the Kaiser Family Foundation Health Tracking Poll, which has been conducted on a near-monthly basis since Obamacare's passage, just a handful of months have demonstrated a more favorable view of Obamacare than unfavorable.
There are a number of reasons why Obamacare hasn't exactly been welcome with open arms by the public. To begin with, the individual mandate, while necessary, wasn't well liked. The individual mandate is the actionable component of the ACA that requires consumers to purchase health insurance or face a penalty come tax time. Last year, the penalty rose to the greater of $695 or 2.5% of your modified adjusted gross income.
Consumers never adjusted to the idea that they "had" to purchase health insurance. Of course, without the individual mandate, there was little chance that healthier young adults, who the insurance industry needed to counteract the higher costs of sicker individuals with pre-existing conditions, would enroll.
Consumers also haven't been too happy with the recent surge in Obamacare premium pricing. Benchmark premiums (the second-lowest cost silver plan) across the more than 3 dozen states serviced by HealthCare.gov are rising by an average of 25% in 2017.
Lastly, changes to the minimum essential benefits angered millions of consumers. Despite Obama's pledge that consumers would be able to keep their plans and their doctors, millions of consumers had their plans cancelled, and subsequently lost their primary care physicians because their insurers didn't want to update their current plans to make it ACA-compliant.
Trump and Republicans ready to implement Trumpcare
During his campaign, Donald Trump made it clear that one of his top priorities once in office would be to repeal and replace Obamacare. Following his election, and in the days leading up to his inauguration, Congress confirmed that healthcare reform is essentially the top priority.
Previously, Trump released a seven-point plan to combat high healthcare costs in America.
- Repeal Obamacare.
- Allow health insurance to be sold across state lines.
- Allow consumers the ability to take full health-premium tax deductions.
- Promote the use of Health Savings Accounts.
- Require better price transparency from health-benefits providers.
- Block grant Medicaid to the states.
- Remove barriers to entry for overseas drug providers.
It's quite possible we could see changes to Trump's proposal as it works its way through Congress. For example, block-granting Medicaid to the states is probably a great idea and likely to remain in the final version of Trumpcare. Allowing the states to partition out federal Medicaid funds makes more sense than having the federal government oversee the process given that states are more likely to understand where Medicaid funds should be spent at the local level.
On the other hand, removing the barriers to entry for overseas drug producers may not make the cut, despite Trump's insistence that he'll lower drug prices in the United States. The Food and Drug Administration currently oversees the manufacturing process of pharmaceuticals within the U.S., and allowing overseas drugs to be imported into the U.S. would require a complete reworking of FDA regulations, which is an unlikely scenario.
Here's an irony you never saw coming
Additionally, Trump and his Republican colleagues are going to have to come to terms with the fact that a repeal of Obamacare may not be as easy as they realize. Repealing Obamacare without a filibuster would require 60 Senate votes. Though Republicans have a majority in both houses of Congress, they don't have 60 Senate votes. This probably means Republicans will target a reconciliation act of some sort, allowing them to repeal aspects of Obamacare that affect the federal budget. Reconciliation would effectively gut Obamacare while leaving its shell (i.e., the laws governing health-benefit providers) in place.
Yet one of the more interesting ironies with Obamacare being on the verge of repeal or reconciliation is that the 2010 health law has a higher approval rating now than at any point during its existence. With more than 20 million consumers facing a change to their health insurance, or the possible loss of their subsidies or Medicaid funds (via Medicaid expansion in 31 states), consumers are more skittish than ever about what could happen to their coverage.
With no concrete plan currently laid out, the roughly 8.8 million people currently receiving the Advanced Premium Tax Credit (the subsidy that lowers premium costs) could be exposed to the full monthly costs of health insurance, while individuals and families making more than 100% of the federal poverty level, but less than 138%, would presumably no longer qualify for coverage under the Medicaid program.
This group is eager for Trumpcare's approval
Keeping with the theme of ironies, the real surprise is the group that can't wait for Trumpcare's approval: the drug industry.
If you're scratching your head, you're not alone. Trump has, on many occasions, sacked the valuations of publicly traded drugmakers by making comments about high drug pricing within the past few weeks. In fact, in a recent interview with The Wall Street Journal, Trump suggested the drug industry was "getting away with murder." Those are strong words to suggest that Trump won't idly sweep drug pricing under the rug.
However, in an interview at the World Economic Forum in Davos on Thursday, Jan. 19, the CEO of Swiss-based drugmaker Novartis (NYSE:NVS), Joe Jimenez, suggested that repealing and replacing Obamacare could be good news for the drug industry. Jimenez notes that the passage of the ACA didn't lead to a big uptick in medicine prescriptions as was once expected. Jimenez blamed this on both the enrollment of younger adults who don't visit the doctor often or take prescription medicines, and the strictness of Obamacare in tying the hands of the insurance industry. High drug prices and copays kept newer specialty medicines off insurer formularies, making it difficult for drugmakers to grow their top and bottom lines.
According to Bloomberg, Roche Holding's (NASDAQOTH:RHHBY) chairman Christoph Franz concurred with Jimenez in a separate interview. Franz noted that he can't envision millions of Obamacare enrollees suddenly losing their health coverage and not having another plan in place. Franz views a replacement plan as a positive for the drug industry.
To some degree, Jimenez and Franz may have a point. Even with Trump suggesting that he wants to limit the pricing power of drugmakers, Republicans generally favor a free market economy, even if that means higher prices for specialty pharmaceutical products. Plus, it's not as if Trump's proposal to allow overseas pharmaceuticals into America resolves the real issue with drug pricing – that being the initial pricing of newly approved therapies.
We simply won't know the impact on drugmakers until Trump and Republicans lay out a concrete plan. The good news is we should have a plan to examine very soon, which consumers and drugmakers will want to play close attention to.
Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, 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 a disclosure policy.