During the first 100 days of the Trump administration, healthcare policy has been the most significant domestic initiative undertaken, though most of the focus has been on Congress. One of President Trump’s first Executive Orders authorized federal agencies and departments to grant exemptions from, and delay implementation of, the Patient Protection and Affordable Care Act enacted in 2010. This extremely far-reaching legislation, more commonly called the Affordable Care Act (“ACA”) or ObamaCare, has been controversial from the start, and its repeal was one of the few unifying themes of Donald Trump’s presidential campaign and the Republicans who now control the House of Representatives and the Senate. The following commentary highlights some of the more significant aspects of the “Repeal and Replace” effort as they pertain to U.S. healthcare policy generally, and to Medicare and Medicaid specifically.
I. Healthcare Policy
It was completely predictable that the ACA would be controversial because its overriding goal was to reduce the number of Americans who lacked health insurance, but 85% already had such insurance. In other words, many more people anticipated that the new legislation would diminish their present well-being than expected to benefit from its enactment. Moreover, few issues are more personal than healthcare, so any major governmental intervention in this area was likely to stir considerable anxiety, if not resentment. Compound these realities with the perception among an increasing proportion of the U.S. population that the federal government is too expensive and intrusive, and the scene was set for serious contentiousness. On the other hand, once the ACA was implemented, those persons who did benefit from its various provisions were understandably reluctant to see those protections eliminated.
Into this maelstrom the Trump administration waded by encouraging congressional Republicans to prioritize the elimination of ObamaCare before tackling other important domestic issues, such as the perennially popular topic of tax reform. The central conundrum faced by would-be repealers of the ACA, however, was that almost all Americans supported the new law’s prohibition on health-insurance companies being able to refuse coverage due to an applicant’s preexisting medical conditions. That provision, in turn, requires that the pool of insureds be as broad as possible in order to spread the risk of paying for serious illnesses. To counter the possibility of “adverse selection,” whereby people who buy health insurance are more likely to need such care, the ACA required that most Americans acquire such insurance or face a substantial financial penalty for remaining uninsured.
The ACA’s individual and employer mandates responded to this need but were ferociously attacked from the outset as unconstitutional and antithetical to liberty, while simultaneously being too weak to be truly effective. The resulting uncertainty and instability in insurance markets led to large premium increases and ever-narrower provider networks being offered to the newly insured. Recently proposed legislation to repeal the ACA eliminates the mandates, but then struggles to ensure sufficient enrollment through refundable tax credits and a 30% penalty on persons who do not maintain continuous health-insurance coverage. The result, according to the Congressional Budget Office, is that the new approach would likely result in 14 million previously insured Americans becoming uninsured.
From a broader perspective, it is clear that preexisting-condition exclusions, mandates to maintain health-insurance enrollment, and penalties on those who choose to be uninsured are inevitable components of a health-insurance system dominated by private companies that must balance their effort to obtain broad coverage pools with the need to avoid especially costly customers. The ACA was certainly not perfect in its attempt to accommodate these conflicting imperatives, but attempts at a replacement do not seem likely to be much more effective either. Most other developed countries avoid this dilemma entirely by providing health insurance to all their citizens, but that approach is a nonstarter in the current U.S. political environment.
The federal government’s healthcare program for people age sixty-five and older (and younger disabled persons) — namely, Medicare — is a close analog to universal health insurance for the populations it covers, but it will also be impacted by the effort to repeal and replace the Affordable Care Act. The most immediate impact of this effort pertains to the infamous gap known as the “donut hole” in Medicare’s coverage of prescription drugs. Nearly 25% of senior citizens are affected by this anomaly, which the ACA closes over a ten-year period that is presently underway.1 Repealing the ACA, therefore, will halt the ongoing process of closing Medicare’s prescription-drug-coverage gap, and may even restore this gap to its pre-ACA dimensions.
More generally, much of the financing of ObamaCare comes from reduced future payments to Medicare providers other than doctors—i.e., hospitals, nursing homes, home-health agencies, hospices, and managed-care plans. If the ACA is repealed, those future payment reductions will be reversed, and patients’ co-payment obligations tied to providers’ fees will necessarily increase. Monthly premiums will also increase for the same reason.
More significantly still, the 2016 Republican Party platform proposed changing Medicare from its present defined-benefit paradigm to a defined-contribution format. In this “privatized” version, Medicare would no longer be an open-ended government entitlement. Rather, Medicare beneficiaries would receive a stipulated amount to purchase private health insurance in lieu of the government’s one-size-fits-all plan. These amounts, described as “premium support” by their proponents and as “vouchers” by their opponents, would allow the federal government to know in advance the cost of Medicare, but beneficiaries would have greater financial exposure than at present. While candidate Trump repeatedly promised to “save . . . Medicare without cuts,” it is possible that the salutary budgetary impact of reconceptualizing Medicare along these lines might appeal to a President Trump who is also seeking major reductions in federal tax revenues.
The increase in health-insurance coverage under the ACA has largely resulted from extending the government’s healthcare program for poor people — namely, Medicaid — to populations that were previously ineligible for the program. Although state governments pay part of Medicaid’s costs, the ACA provided that the federal government would pay all the expenses associated with Medicaid’s extension for a stipulated number of years and a disproportionately large portion of those costs thereafter. Repealing the ACA would eliminate these Medicaid extensions over a very short timetable. Accordingly, millions of Americans would no longer be eligible for Medicaid because their financial situation is not as dire as Medicaid’s pre-ACA criteria requires.
More fundamentally, Republicans have long sought to transform Medicaid into a program with fewer restrictions and mandates on participating state governments so that those states could better tailor their programs to the needs of their constituents. A Trump campaign position paper similarly advocated for transferring the federal government’s share of Medicaid expenditures, typically determined on a per-enrollee basis, to the states via “block grants.” This would then allow state governments to decide which medical services to cover, and for whom. In so doing, states would not be required to adhere to Medicaid’s current eligibility parameters and existing portfolio of “mandatory” and “optional” coverages. Apart from resetting the contours of fiscal federalism, these “block grants” for Medicaid would appeal to Republican governors, as well as to federal government budgeteers.
In summary, truly major changes await in how Americans finance their healthcare expenditures if the Trump administration secures all the healthcare policies it is seeking.
* Peer and Sarah Pedersen Professor of Law, University of Illinois College of Law. He specializes in federal income taxation and policy and elder law. In addition to numerous books and articles involving taxation and tax policy, he is the co-author of Elder Law in a Nutshell, published by Thomson/West (6th ed. 2014), as well as articles on various elder law topics, including Social Security, Medicare, long-term care financing, and retirement funding.
1 See generally Richard L. Kaplan, Analyzing the Impact of the New Health Care Reform Legislation on Older Americans, 18 Elder L.J. 213, 215–22 (2011).