Trump Healthcare Policy Review

US Presidential Candidate Donald J. Trump released a policy for healthcare reform on Wednesday 2 March 2016.[1] The policy presents seven main points. Here, I will review the three main points of the policy as presented.

Repeal ‘Obamacare’, Eliminate Individual Mandate

“Completely repeal Obamacare” and “eliminate the individual mandate” to buy insurance.

Obamacare (or the Patient Protection and Affordable Care Act) requires insurance companies to provide a minimum standard of coverage to all applicants at the same rates without regard to pre-existing conditions. These requirements lead to higher premiums as they encourage higher risk people to purchase insurance while lower risk people are priced out of the market. To counter this effect, the law also requires an individual to purchase insurance or pay a penalty, bringing lower risk people into the insurance pool. Without the individual mandate, insurance premiums would rise even faster, leading more people to drop out or take policies with even higher deductibles.

In order to keep insurance affordable, the Trump proposal to eliminate the individual mandate would also require some combination of limiting coverage for pre-existing conditions, lowering minimum standards of coverage, or allowing risk factors to play a role in premium calculation. The combination of options taken would be determined by the states according to the next aspect of the policy proposal.

Allow the Sale of Health Insurance Across State Lines

Allow “the sale of health insurance across state lines”. “As long as the plan purchased complies with state requirements, any vendor ought to be able to offer insurance in any state.” This is understood to mean that, for example, if a health insurance policy offered by a New York firm complies with New York state law, then a person from any other state should be able to purchase this health insurance policy.

This is the key to more affordable insurance and wider coverage. Not only would the proposal deliver more competition between health insurance companies, more importantly, it would also allow for regulatory competition between states as well. Patients, able to purchase across state borders, would seek affordable coverage for relevant insurable risks. States that mandated coverage of irrelevant items or uninsurable risk would find their tax base shrinking as business departed for other states. In order to attract more business, states would likely reduce mandated coverage of uninsurable risk, making insurance more affordable.[2] Healthy behaviour may also be encouraged by allowing risk factors to play a role in premium calculation. Of course, states may decide to keep mandated coverage or offer other welfare programs for uninsurable risks outside the insurance market. This would lead to a situation of separating insurance from welfare programs, rather than trying to achieve both through a hampered insurance market.

Allow Premiums to be Tax Deductible

“Allow individuals to fully deduct health insurance premium payments from their tax returns under the current tax system.”

Expenses for medical care are deductible against taxable income if they are incurred by the employer, but not deductible if incurred by the employee. How did employer funded healthcare come about? When the income tax was introduced in 1913, the Internal Revenue Service (IRS) treated employer expenses for health insurance as a nontaxable fringe benefit.[3] During World War Two, the United States government imposed wage and price controls while financing spending through the creation of new money. A labour shortage was created, as the price of labour was unable to rise with the inflation. Employers offered medical care as a fringe benefit to secure labour services and get around the price controls. [4] In 1953, IRS ruled that employer contributions be included in the employee’s taxable income. However Congress, responding to the objections made by employees, legislated that medical care provided by employers be tax deductible.[5]

This connection between health insurance and employment has various effects. While employers can buy in bulk and keep administrative costs low, employees may lose their health insurance if they lose their job.[6] In addition, when insured with low or no co-payments, doctors and patients can make healthcare decisions with little consideration of cost. Patients will consume healthcare services until the benefit is lower than their co-payment. Doctors may also service beyond the point of no additional benefit in order to avoid malpractice suits. This extra service may also benefit doctors if their income is based on the number of services provided. However, as this puts pressure on premiums to rise, the insurer will likely ration care in some other way.[7]

Making insurance deductible to the individual would make it more likely that individuals take out their own insurance rather than accept health insurance through their employer. Individuals may even prefer buying insurance themselves as this enables them to change or end employment without ending health insurance. It would also offer them more choice in the type of policy they choose. Policy options would be even broader if policies could be sold across state lines. People without work or without insurance provided by their employer would also be more likely to take up insurance, making them less dependent on government or their own savings.

Allow Individuals to use Health Savings Accounts (HSAs)

“Allow individuals to use Health Savings Accounts (HSAs).” Currently in the USA, a person is eligible to open an HSA if they have a high-deductible health insurance plan (where the deductible is at least $1,300 for an individual or $2,600 for a family).[8] It is understood that this policy would allow Health Savings Accounts to every individual.

The use of Health Savings Accounts would encourage patients to source their funding of healthcare from their HSA rather than their insurance policy. Use of the HSA would preserve patient choice of doctor, promote professional independence and therefore avoid managed care.[9] The use of HSAs would also tend to promote higher quality and lower cost as patients spend their own money on themselves.[10]

Conclusion

The proposed healthcare policies create a dynamic and competitive health insurance market, offering lower premiums for insurable events and therefore widening access to this market. Under these policies, welfare would be separated from insurance, allowing a broad insurance coverage, leaving a smaller number of uninsured people dependent on welfare. The broad use of health savings accounts would promote higher quality healthcare at lower cost, avoid managed care and support the doctor-patient relationship.

[1] Healthcare Reform to Make America Great Again, 2 March 2016, https://www.donaldjtrump.com/positions/healthcare-reform

[2] Hans-Hermann Hoppe, Uncertainty and Its Exigencies: The Critical Role of Insurance in the Free Market, 7 March 2006, https://mises.org/library/uncertainty-and-its-exigencies-critical-role-insurance-free-market

[3] Congressional Budget Office, The Tax Treatment of Employment-Based Health Insurance, March 1994, p.5, https://www.cbo.gov/sites/default/files/103rd-congress-1993-1994/reports/1994_03_taxtreatmentofinsurance.pdf

[4] Milton Friedman, How to Cure Health Care, The Public Interest, Winter 2001, http://www.thepublicinterest.com/archives/2001winter/article1.html. See also History of Health Insurance Benefits, March 2002, https://www.ebri.org/publications/facts/index.cfm?fa=0302fact

[5] Congressional Budget Office, op. cit., p.5

[6] Ibid. p. 3

[7] Ibid. p. 14

[8] Mayo Clinic, Health savings accounts: is an HSA right for you?, 8 April 2016, http://www.mayoclinic.org/healthy-lifestyle/consumer-health/in-depth/health-savings-accounts/art-20044058

[9] Jeremy Sammut, MEDI-VALUE: Health Insurance and Service Innovation in Australia – Implications for the Future of Medicare, Research Report 14, 20 April 2016, p. 25-26, https://www.cis.org.au/publications/research-reports/medi-value-health-insurance-and-service-innovation-in-australia-implications-for-the-future-of-medicare

[10] In Friedman’s classification of spending, this is category I expenditure. See chapter 4 in Milton Friedman, Free to Choose, 1980, p. 116

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