Donald Trump’s Obamacare Alternative Isn’t Bad, But It Isn’t Great Either – Pacific Research Institute

Donald Trump’s Obamacare Alternative Isn’t Bad, But It Isn’t Great Either

“Repeal and replace with something terrific.” That was Donald Trump’s promise for how he’d deal with Obamacare shortly after he announced his candidacy in June.

Trump has finally revealed just what he meant by “terrific.” Last week, he released a seven-point plan outlining his alternative to Obamacare. Trump calls it “Healthcare Reform to Make America Great Again.”

While it’s not great, Trump’s plan isn’t bad. His alternative mostly adheres to free-market principles. But it still misses the mark on a few crucial points — namely, its anti-market proposals toward prescription drugs.

First, Trump would repeal Obamacare. As he correctly notes, “No person should be required to buy insurance unless he or she wants to.”

Second, he’d get rid of restrictions on the interstate sale of health insurance.

This has been a standard plank in many free-market reform plans. At present, people buying on the individual market are captive to their state’s insurance regulations. If a health plan in Alabama is $100 cheaper than the same one in New York — tough luck for residents of the Empire State.

Trump — like other Republicans — is advocating that consumers who live in high-cost states be able to buy coverage from lower-cost states.

Economists from the University of Minnesota found that a national insurance market would boost the rate of insurance coverage by 49% in New York and 22% in New Jersey — two states with some of the most onerous, expensive health insurance regulations. More people in those states would buy insurance in a national market, presumably, because they’d have access to low-cost choices previously unavailable to them.

Third, Trump calls for individuals to be able to deduct health insurance premiums from their income taxes.

In so doing, Trump’s plan would tackle one of the biggest problems in U.S. health care today — the decades-old tax distortion that allows people to get coverage through their employers tax-free but forces everyone else to use post-tax dollars.

By making premiums tax-deductible, Trump’s plan would help level the playing field. But the move won’t make health insurance affordable and accessible to the more than 40% of Americans who have no income-tax liability.

Trump should instead embrace age-based refundable health insurance tax credits, which every American would be able to claim and use to purchase coverage, regardless of income or tax liability.

Since healthcare costs often increase with age, these credits should do the same: $1,200 for those aged 18 to 35, $2,100 for those 35 to 50, and $3,000 for anyone over 50. Families should also receive $900 for each child covered.

Fourth, Trump wants to promote tax-advantaged Health Savings Accounts, which have been available since 2003. His plan notes that “the flexibility and security provided by HSAs will be of great benefit to all who participate.”

He’s right. HSAs allow consumers with high-deductible health plans to set aside money tax-free for healthcare expenses. They can also withdraw the funds without paying tax, provided they go toward a qualified medical expense.

Trump also calls for HSAs to be part of an individual’s estate. An account could therefore be passed on to next of kin without fear of being faced with federal taxes.

But Trump’s plan should allow people to sock away even more money. Currently, the government limits contributions to $3,350 for individuals or $6,750 for families. These limits should be raised to match those for individual retirement accounts — $5,500 per person, and $6,500 per person over the age of 50.

HSAs will help increase price transparency, the fifth goal of Trump’s plan. Because consumers will be spending their own money, they’ll have a strong incentive to demand clear rate quotes from healthcare providers — and could even pit providers against one another to compete for their business.

Trump is also calling for federal block grants to states for Medicaid.

Currently, the feds pick up as much as 75% of a state’s Medicaid tab — no matter how large. This arrangement encourages states to spend without restraint. As a result, Medicaid consumes about 15% of U.S. health spending.

By switching to block grants, the government can challenge states to spend their Medicaid dollars wisely. States could tailor their programs to meet the specific needs of their state’s low-income population. As Trump correctly notes, “The state governments know their people best and can manage the administration of Medicaid far better without federal overhead.”

The final point of Trump’s plan is decidedly not “great.” He argues that “allowing consumers access to imported, safe and dependable drugs from overseas will bring more options to consumers.”

Drugs in other nations are only cheaper because their governments cap their prices. Importing foreign price controls would gut medical research and innovation.

Pharmaceutical companies spend enormous amounts of time and money — in excess of 10 years and $2 billion — developing each new drug. If drug companies had to contend with price controls in the United States, too, they’d have an even smaller chance of recouping their research investments. Drug development would grind to a halt.

Some folks may think we could make up for any slack in development through importation. But we can’t. Many of today’s most effective-drugs aren’t available in countries like Canada. And for those drugs we do import, the United States would then have to worry about accidentally importing counterfeit drugs, which can threaten patients’ lives.

This isn’t the first time that Trump has called for price controls on drugs.

Trump recently promised to let the government negotiate prices directly with manufacturers for drugs dispensed through Medicare Part D. He claimed he could save $300 billion — more than the entire nation spends on drugs annually.

But a buyer the size of the government doesn’t negotiate prices, it dictates them. The effect on medical research would be catastrophic.

Trump’s new health reform plan is a marked departure from what he has supported in the past. Within the last year, he’s been an advocate of government-run single-payer healthcare, a champion of Obamacare’s individual mandate, and now apparently a supporter of market-based reform.

His latest “evolution” is a hopeful sign. But as he’s proven time and again, nothing is predictable with the Donald.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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