Despite what the critics say, President Donald J. Trump's healthcare policies will improve peoples' lives. A new analysis out this week from the Council of Economic Advisers shows large projected net benefits from the Trump Administration's actions to expand families' ability to purchase the healthcare that works best for them — to a value of nearly $500 billion over the next decade, which averages about $3,500 per household.
The first critical action was the elimination of the tax associated with Obamacare's individual mandate, which penalized people who failed to purchase Obamacare-compliant insurance that was often broader and more expensive than they wanted or could afford. The Administration worked with Congress to remove this tax penalty, which imposed a sizable burden on families, especially lower-income households — nearly 80 percent of households paying this penalty had annual income below $50,000. Eliminating this tax also significantly reduces wasteful spending for benefits that people did not want, as demonstrated by their dropping of coverage as soon as possible once they penalty was eliminated. The Congressional Budget Office estimated this action reduces the Federal deficit by more than $300 billion over a decade.
Further, through procedures for notice and public comment, the administration created more affordable health insurance options for employers to cover their workers and also for people without access to insurance on the job. First, in June 2018, the administration made it easier for employers to form Association Health Plans (AHPs), which allow employers to band together to sponsor a group health plan. Longstanding federal law already permitted groups of employers to form national industry associations that could offer health coverage through AHPs. The administration created a new pathway for employers, including certain self-employed individuals, in a geographic locale to band together for more affordable insurance. The Las Vegas Chamber of Commerce is planning to sponsor an AHP through this new pathway, for example. There are now some 500 employers in the process of signing up for the Las Vegas Chamber of Commerce’s AHP, with some of their employees saving more than $2,000 per year.
Second, in August 2018, the administration allowed short-term plans to be offered for up to 36 months, instead of only a few months, reversing restrictions put in place by the Obama administration in late 2016. These plans, which typically cost less than half of Obamacare plans, are a potentially attractive option for the nearly 30 million uninsured, people with gaps in employment, and those most hurt by rising premiums and lack of affordable coverage.
By freeing people to renew their plans for up to 3 years, the Administration’s actions will reduce application costs, lower the risk of loss of coverage, and allow for more innovation in plan design. CEA estimates that the independent effect of these two deregulatory actions will provide net economic benefit to Americans of $25 billion each year, even accounting for the costs of uncompensated care. CBO projects that 6 million people will enroll in this new coverage, including many otherwise uninsured individuals.
Working within the framework established by Congress, President Trump’s policies have opened up paths for lower income people to join the majority of Americans with private health coverage. They also alleviate the disincentive to work that accompanies large Government subsidies, including expanded Medicaid, that are only available for people with low-incomes and may create a poverty trap for as people are forced to leave full-time work in order to maintain eligibility for Government subsidies.
The positive impact of these changes is reflected not only in dollars saved, but in genuine improvements in the lives of Americans, as measured by increases in real disposable income and access to affordable health coverage. The test of our efforts is the impact on consumers’ economic well-being, which CEA measured according to how consumers themselves value their health insurance options, rather than focusing on less relevant input metrics, such as the number of enrollees in government programs, that tend to dominate the policy debate.
The administration’s actions are both deregulatory and progressive. They are progressive because allowing more choice — and permitting families to choose the coverage that’s right for them — helps lower- and middle-income families more than higher-income ones. Lower- and middle-income families have access to new, more affordable coverage, and will not be hit with the mandate tax penalty if they decide not to purchase more expensive insurance than they really want or need. Additionally, the broad-based taxes that finance Obamacare’s subsidies will continue to be paid primarily by higher-income individuals. Taken together, these actions put working families first, relieving some of the financial burden to fund exchange coverage that had partially fallen on lower- and middle-income individuals.
While the administration has increased choices and financial freedom, national average premiums have actually fallen in the Federal exchange for the first time since Obamacare was enacted, thanks in part to Administration waivers that have enabled States to use some of Obamacare’s inefficient subsidy structure to cover the sickest people more directly.
Finally, while much progress has been made, the president realizes that the American health care system is still too costly and complicated for the average family while powerful rent-seeking institutions like large hospitals, insurers, and pharmaceutical manufacturers benefit from Government protection and taxpayer spending. To lay out ideas for addressing these concerns, the administration recently released a comprehensive report, Reforming America’s Healthcare System through Choice and Competition. The report identifies reforms at the federal and state levels that could improve health outcomes while squeezing out unnecessary costs through expanded choice, competition, and innovation. Going forward, the president will continue to challenge special interest groups wedded to the inefficient status quo to ensure that the healthcare system works and is affordable for all American families.
Brian Blase is a Special Assistant to the President on the National Economic Council. Casey Mulligan is Chief Economist at the Council of Economic Advisers. Tomas Philipson is a Member of the Council of Economic Advisers.