Trumpcare: Bad Policy, Even Worse Politics

The Obamacare replacement plan offered by President Trump and Paul Ryan is scheduled for a vote in the House today. Even though the Republicans have a significant majority in the House, the vote is expected to be a close call as several GOP Members have opposed the legislation.

Indeed, this gets at perhaps the most impressive aspect of the Trumpcare proposal: that it manages to disappoint on almost every criteria imaginable. It’s bad policy and bad politics at the same time. Failures of this magnitude don’t just happen; it takes planning and hard work. And for that, House Speaker Paul Ryan deserves a lot of credit. Not praise mind you, just credit (or blame, if you prefer).

I digress.

In honor of today’s vote, it’s worth quickly highlighting some of its worst aspects.

Bad Policy

The Affordable Care Act is a fundamentally unsustainable program. The reason for this is that it requires–and expects–insurance companies to behave in a way that they can’t possibly behave. It destroys insurance in the name of saving it.

This is achieved through three interlocking components of the plan:

  • Price controls: Insurance companies are effectively prohibited from pricing their insurance according to the risk of the applicant.
  • Essential health benefits: The government mandates (and sets a fairly high bar) for what types of treatments and services must be covered by insurance plans
  • Guaranteed issue: People with expensive medical conditions cannot be denied coverage.

The way these provisions work together is best illustrated by imagining what happens when someone with an expensive medical condition seeks insurance. For our purposes, suppose it’s a person with diabetes.

  • Price controls: The insurance company knows it will cost more money to cover a diabetic than the average applicant, but they can’t charge them different premiums.
  • Essential health benefits: The insurance package provided must provide coverage for things diabetics need.
  • Guaranteed issue: The insurance company cannot deny coverage to the applicant because they are diabetic.

The way the ACA hopes / assumes insurance companies will respond in this scenario is by raising prices for everyone. This would then result in the relatively healthy subsidizing the relatively sick–which, to be fair, is what health insurance is designed to do. Even better yet, since the ACA required healthy people to get coverage (the individual mandate), perhaps insurance companies would have enough healthy people joining that they wouldn’t have to raise premiums at all.

Like I said, in theory, that’s how the ACA was supposed to work. However, one of the things many people do not realize is that insurance companies also have a second option. Instead of raising premiums so they can afford to cover the diabetic patient in our example, they could also just find subtle ways to discourage diabetic patients from joining their plan. That is, if they offer uniquely bad healthcare options to diabetic patients–while still nominally complying with the essential health benefits part of the ACA–then fewer diabetic patients will join and the insurance companies will make more money (or lose less money).

In practice, health insurance companies have been choosing both options. They raised premiums and they embarked on what has been aptly termed the “race to the bottom” in coverage for expensive conditions. The result is a lose-lose situation for consumers and the damage will continue to worsen over time. Premiums will keep rising and the quality of care provided–especially for unique or expensive conditions–will continue to deteriorate.

Yes, it’s easy to vilify health insurance companies for engaging in these practices. But they are following the incentives that were created by the ACA policy. And good policy can’t rely on individuals and for-profit companies ignoring the incentives placed in front of them.

Of course, it should go without saying that we want a system where diabetics and healthy people alike have access to quality healthcare. The point is that the ACA is not that system. In the not-so-long run, it succeeds in sabotaging everyone–people that are healthy, people with severe conditions, and the insurance companies themselves.

Why do I raise these features of the Affordable Care Act in an article about Trumpcare? Because Trumpcare keeps all of them, with minimal modifications. The same core features that doomed the ACA to crescendo into chaos are preserved in Trumpcare. And that’s why Trumpcare, at least as currently written, is destined to arrive at the same unpleasant end.

Worse Politics

All of which is why the politics surrounding Trumpcare are so confusing. It is not a radical reform and there’s no reason to believe it would change the trajectory of the ACA and the US healthcare system. In all probability, premiums would continue rise and the incentivized race to the bottom in the coverage would proceed in earnest, even after Trumpcare.

Politically, these would be clearly toxic outcomes for the Republicans. They have invested a significant amount of political capital into disparaging Obamacare, and rightly so. But if the system they devise as a replacement then produces the same outcomes, it seems certain they would lose whatever credibility they have left at this point.

There are many policy areas where the politicians that support bad policies will suffer no political repercussions for the harm caused. These are areas where the relationship between cause and effect is sufficiently complicated or indirect that the average won’t really understand why the negative outcome occurred. Indeed, in many cases, supporting bad policies is actually an excellent strategy politically.

But healthcare is not one of those cases. It has too high of a profile at this point for failure to go unnoticed. Additionally, the failure is readily identifiable by regular voters in the form of higher premiums, fewer choices, etc. So if TrumpCare passes and then subsequently fails, there will be little doubt who’s responsible.

Incredibly, Trump told the Republican opponents of the bill that would suffer politically if they don’t pass this bill, “I honestly think that many of you will lose your seats in 2018 if you don’t get this done.” He has it exactly and obviously wrong.

Conclusion

Ultimately, we should hope that the more libertarian-leaning Members of the House will be able to kill this bill today. There’s only going to be one good chance at reforming or eliminating the ACA. If Republicans get it wrong–as this bill clearly does–the US will be well on its way to getting a single-payer system a few years down the road.