Trump Releases His Healthcare Plan

Presidential candidate Donald Trump has been vague and contradictory about the kind of healthcare reform plan he would offer to replace Obamacare. He has previously talked about having a government-run system, a mandate to purchase health insurance, “getting rid of the lines around the states,” allowing the government to “negotiate” drug prices, or preventing people from “dying on the streets.”

Late Wednesday, Trump released a seven-point proposal to replace Obamacare. While there are some very traditional conservative ideas offered, he has also presented some very troublesome policies. His plan is still short on details, but here is a quick critique:

• Trump’s desire to repeal Obamacare and eliminate the individual mandate is in line with conservatives. The federal government’s micromanagement of healthcare has driven up costs, forced millions to purchase a healthcare plan they do not want or need, and stifled job growth. For example, it is nonsensical that a single man purchasing a plan in the individual market must pay for maternity and pediatric care or that someone, which has never had a mental health or substance abuse problem, is forced to purchase coverage for those conditions. Yet, with Obamacare’s mandated ten essential benefits, that is what is happening and it is driving up premiums.

• Allowing people to shop for health insurance cross state lines had long been pushed by conservative politicians and free-market health advocates because, prior to Obamacare, some states had more burdensome regulations compared to others. But, as Joseph Antos of the American Enterprise Institute points out, there are pros and cons in doing so if regulatory control is returned to the states. Differences in population characteristics such as age and health, the cost of living, the number and types of physicians available and access to cutting-edge medical technology have an effect on health insurance premiums. Antos believes it is unlikely interstate sales would reduce healthcare costs by very much and a better approach would be to institute reforms that make the insurance market more responsive to consumers.

• Trump calls for people to be allowed to use Health Savings Accounts (HSA.) But they are already in use and have been since 2003. Used in partnership with a catastrophic plan, they have found to be very successful in driving down healthcare costs. HSAs encourage people to be more engaged in their routine healthcare purchases. Individuals are incentivized to shop around for the best price on a service or even question their doctor if certain tests are really necessary. Perhaps the Trump campaign means expanding the use of HSAs would be beneficial.

• Equalizing the tax treatment in obtaining health insurance has long been discussed in conservative circles as a way to help those that do not get coverage from their employer. (Employers deduct the expense of health insurance premiums as a cost of doing business and employees receive a tax-free benefit.) But most health policy experts agree that premiums should not be fully deductible, as Trump advocates. Doing so would encourage people to purchase the most expensive plan available to them, driving up healthcare costs and such a plan would not help low-income people. Discussed more often is utilizing some form of a limited tax credit to purchase health insurance or Large HSAs, which could be used to purchase health insurance tax-free. These policies are often promoted as a way to transition away from an employer-based system to an individually-owned system that would make healthcare providers more responsive to consumers.

• More transparency in healthcare pricing is a good idea, but what does that mean exactly? Having the cost of medical procedures, doctor’s office visits, lab tests, etc. easily available so people can shop for the best deal would be beneficial. In fact, HSAs encourage that kind of transparency. It would not be helpful if transparency means exposing the outcomes of confidential and intense contract negotiations between healthcare providers and suppliers. Those actions would increase costs and encourage litigation.

• Block-granting Medicaid funding to the states is an idea conservatives have supported for years. Allowing 50 states and the District of Columbia to find more creative and better ways to help the poor gain access to healthcare, without having to ask the federal government for permission, will help drive down costs and improve quality.  States can act as laboratories, discovering what works best.

• Allowing Americans to import drugs from other countries may sound good but it will not solve the problem of high drug costs. Other countries use price controls to keep their drug costs down. That may work in the short run but it destroys medical innovation in the long run. Furthermore, politicians that push drug importation assume Canada or a European country will willingly ship large quantities of their citizens’ drug supplies to the U.S. That will not happen, at least not without adding a large cost to the process. Importation also opens up the door to drug diversion and forgery.

What will lower the costs of drugs and spur more innovation is competition. The problem is the Food and Drug Administration (FDA) approval times for both innovator and generic drug companies take too long. It takes 10-12 years to get a new drug approved by the FDA, costing on average $2.6 billion. And the reason why former-CEO Martin Shkreli of Turing Pharmaceuticals was able to increase the price of the drug Daraprim from $13.50 a pill to $750, was because there were no generics available.  Currently, FDA has a backlog of more than 4,000 generic drug approval applications.

While not mentioned in his reform package, Trump has called for the government to negotiate prices in Medicare Part D, which in reality is price controls. Vigorous negotiation already occurs between pharmaceutical companies, pharmacy benefit managers, and pharmacists. In fact, Medicare Part D has been one of the most successful government-created programs. The Congressional Budget Office predicted in 2004 that Part D would cost $123 billion in 2012; its actual cost was $55 billion.