Trumpcare vs Obamacare

Health Insurance

August 2, 2016

With the U.S. presidential election coming up in November, Americans are weighing the pros and cons of each candidate’s stance on important issues. One of the biggest issues facing the country is health care. Despite the successes of the Affordable Care Act, there is still work to be done, and those on either side of the political spectrum have strong opinions on the direction of the U.S. health care system. Repealing and replacing Obamacare has long been the mantra of the Republican Party. Presumptive nominee Donald Trump is no exception. In March, Trump released his official health care proposal, calling it “Healthcare Reform to Make America Great Again.”

Trump’s health care reform plan lacks specific details on how he plans to accomplish his goals. In essence, he intends to repeal the ACA on his first day in office and replace the law with reforms that he believes will improve the current health care system. In this article, we’ll discuss Trumpcare and how it relates to the current law so that you can see how a Trump presidency might influence health care in America.

Changing the Health Care Landscape

On his campaign website, Donald Trump says that “Congress must act.” He then outlines seven actions that U.S. representatives should take to reform health care. The details of his policy are unclear. Trump has adopted the “repeal and replace” mantra of the Republican Party, but many of his ideas and previous speeches conflict with a total repeal of the ACA. In fact, until recently, Trump supported the individual mandate that requires all eligible Americans to sign up for health insurance. For comparison’s sake, we’ll outline the seven key features of Trumpcare and how they relate to Obamacare.

Total Repeal of the ACA

Trump advocates repealing the Affordable Care Act in its entirety, including the individual mandate. Under the current law, every eligible American citizen – which is the majority of the population – must buy or obtain health insurance or face a penalty fine each year. In 2016, the fine for not having health insurance is the greater of 2.5 percent of your family’s household income, or $695 per adult and $347.50 per child under age 18. Percentages are calculated based on taxable income.

For some, the fee isn’t as detrimental as it is to others. Republicans have long argued that an individual mandate infringes on the right of people to choose whether or not they want coverage. However, Obamacare only works if everyone participates. The individual mandate exists to make sure that there’s enough funding in place to make insurance plans affordable on the marketplaces. Trump has adopted the party line on this issue despite supporting the individual mandate in the past. Under Trumpcare, there would be no individual mandate requiring people to obtain health insurance because Obamacare would be repealed.

Eliminating the ACA could have a substantial impact on the federal budget and the number of people with access to health insurance. The Committee for a Responsible Federal Budget ran the numbers based on the information provided by the Trump campaign website. They determined that over the next decade, repealing the ACA would cost $300 billion using dynamic scoring and $550 billion using conventional scoring. In addition, repealing Obamacare would result in 22 million people losing their health insurance coverage. And since Trumpcare would only recoup about 5 percent of those uninsured, Trump’s policies would result in a net loss of insurance for about 21 million people.

Interstate Insurance Sales

The McCarran-Ferguson Act of 1945 is a federal law that allows states to regulate health plans inside state lines. For the last 70 years, insurers have not been able to sell their products across state borders. Exemptions include large employers that self-insure or self-fund their coverage. If you live in Florida, for instance, then you’re limited to buying coverage from an insurer that’s legally bound by state regulations. Each state sets its own guidelines, but all states regulate insurance as they see fit.

Under Trumpcare, insurers would be allowed to sell health plans to anyone. Trump believes that if insurance companies can sell to a broader audience, “insurance costs will go down and consumer satisfaction will go up” according to his campaign website. No specifics have been given as to how costs will go down. However, Trump is a big supporter of the free market, an idea that drives much of his campaign. He believes that as long as an insurer’s policies comply with another state’s guidelines, consumers should have the choice to purchase out-of-state health plans.

Interstate insurance sales is a hotly contested topic among policymakers. As of December 2015, five states have already enacted laws to support interstate insurance sales: Wyoming, Georgia, Kentucky, Rhode Island and Maine. Several other states have considered similar measures in the past. It remains to be seen how the implementation of this concept on a national level would impact health care.

Premium Deductions

Under the current law, certain medical and dental expenses are tax-deductible if they exceed 10 percent of your adjusted gross income for the year. There are a variety of stipulations, including the fact that you have to have incurred the expenses during the taxable year and you have to itemize the deductions. If you’re self-employed, you can also deduct the cost of premiums if you pay for insurance yourself. Many people do not take this deduction. It can be difficult to calculate, and itemizing deductions isn’t always the best strategy for some families.

Health insurance premiums account for the bulk of medical care costs for a lot of people, which can only be deducted if you’re self-employed. Trump wants to change that. Under his plan, health insurance premiums would be fully deductible for all individuals. He argues that since businesses can take a health insurance premium deduction, consumers should be able to take advantage of the same tax break. His plan does not specify whether there are income limitations or exceptions to the tax break.

Health Savings Accounts

Trump’s health care plan includes the option to allow people to use health savings accounts (HSAs) more liberally than the current law allows. Right now, an HSA serves as a way for people with high-deductible health insurance plans to pay for medical expenses. People with HSAs contribute money to the account, and that money is tax-deductible, tax-deferred and tax-free. The account continues to accrue interest as long as it’s funded, but you won’t owe any money on that interest as long as it’s used to pay for qualified medical expenses. The same holds true of withdrawals.

The minimum deductible that an individual must have to open an HSA is $1,300. For families, it’s $2,600. Based on the language of Trump’s plan, it seems as though Trump is proposing to let anyone contribute to an HSA regardless of the deductible. Furthermore, Trumpcare would enable any family member to contribute to and benefit from an HSA account because the accounts would be considered part of a family’s estate. They could also be passed down to heirs of the estate like any other asset, but unlike most assets, an HSA is tax-advantaged. Trump suggests that freedom to contribute to an HSA offers “flexibility and security.”

Price Transparency

One particularly vague aspect of Trump’s proposed reforms on his campaign site is the demand for “price transparency from all healthcare providers, especially doctors and healthcare organizations like clinics and hospitals.” No details are given about what Trump means when he says “price transparency.” However, it could be argued that he wants people to understand their options on an open insurance market. Under Trumpcare, individuals would be given greater access to cost breakdowns so that they could, theoretically, shop around for the most cost-effective provider or treatment as they see fit.

As it stands, when you pick a health insurance plan under the ACA, you’re often limited to network providers. And while there may be some difference in cost among providers within the same network, for the most part, you’re going to pay about the same out-of-pocket costs for similar procedures from doctor to doctor as long as you stay in the network. Trump appears to be advocating for the ability to shop regardless of network or plan. How this would be implemented from a practical standpoint remains unclear. This reform does fall in line with his free market approach to the health insurance industry.

Block-grant of Medicaid Funding

Medicaid is currently funded jointly by the federal government and the states. The Affordable Care Act sought to expand the Medicaid program nationwide to cover more uninsured, low-income families. Most states along with the District of Columbia chose to expand the program, but 19 states have opted against expansion as of March 2016. As it stands, the federal government matches Medicaid funding on a state-by-state basis. On average, the federal government pays for 57 percent of the cost of Medicaid, but the contribution is at least dollar for dollar. Poorer states receive more funding for Medicaid services – up to 73 percent in some of the poorest states.

Trump is proposing an alternative to the current financing system with a “block-grant program.” Under Trumpcare, states would be allotted a set amount of money each year to run their individual Medicaid programs. In some states, a block-grant program could save money if state governments allocate the funds judiciously. In other states, block-grant funding may not work. Because Trump’s plan does not specify how much money would be allocated, financial analysts have struggled to calculate how Trumpcare would impact the current Medicaid system. Trump suggests that block-granting funds to the states would encourage state governments to weed out fraud and eliminate wasteful spending.

Free Market Drug Sales

Trump believes that consumers should have more choices when it comes to pharmaceutical drugs. As such, he is proposing to remove the selling restrictions on international drug manufacturers as long as the drugs are “safe, reliable and cheaper.” Despite his support of the private sector, Trump asserts that drug companies offer a public service. Therefore, Americans should be able to buy drugs from overseas if those drugs adhere to U.S. standards. Prescription costs play a crucial role in health care spending. Trumpcare would enable consumers to bypass substantial monthly drug costs by importing international alternatives.

In addition to the seven reforms outlined above, Trump has proposed several steps for improving health care nationwide. Among these are stricter enforcement of immigration laws, the elimination of fraud and waste, reducing the number of people who are dependent on federal programs like Medicaid and CHIP, and developing better mental health programs and institutions for people who need them. Trump seems especially concerned with immigration, noting that tighter immigration laws and stricter enforcement of those laws may reduce the cost of providing health care for illegal immigrants. According to his campaign website, the U.S. spends $11 billion annually on health care for undocumented residents.

Interestingly, many within the Republican Party disagree with certain aspects of his proposals despite the fact that Trump has created a plan more in line with his base. Looser federal regulations, a strong stance against illegal immigration and free market principles make up the bulk of his proposals. Donald Trump’s health care plan does not have enough specifics for detailed interpretation, but the picture he paints is clear: He intends to repeal and replace Obamacare for good.