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Trump’s Pivot Could Make Health Care Affordable Again
President Donald Trump sent out a surprising statement on Truth Social last week. Though it applied to a specific policy issue — the expanded Obamacare subsidies which are scheduled to expire at the end of the year — Trump’s statement marked a pivot toward a new perspective on health care reform: cash as king. This seemingly ephemeral social media post and the thought behind it could guide the way toward momentous positive reforms.
Trump said trying anything else to reduce the cost of health care would be a waste of time. We think that there are plenty of additional ways to reform the system, and we discuss some of them here. However, the emphasis on putting cash in people’s hands and having them choose their services, instead of giving big companies that money and having them tell consumers how to spend it, is refreshing and absolutely right.
First, let’s recognize how stunning Trump’s statement is. For the first time, a U.S. president has acknowledged a truth well-known among free-market health care reformers: By putting the consumer in charge of the payment, we can restore some of the natural market forces so lacking in health care today. Putting more and more of the nation’s health care on a cash basis would bring down prices, improve services, and foster further positive reforms all across the system.
Since the inception of Medicare and Medicaid in the 1960s established a strong “third-party payer” approach, health care consumers have become increasingly abstracted from the true cost of these services. Obamacare, starting in 2014, put this system on steroids. When a third party such as an insurer or the government pays the bill, the patient and provider become oblivious to how much they spend.
This has led to massive health care inflation on top of enormous waste, fraud, and abuse. Medical care priced at $1,000 in 1965 costs $21,950 today. That’s a 2,195 percent increase, compared to 931 percent for everything else!
The Obamacare subsidies have made matters even worse, and not just for those with Obamacare plans. Because Obamacare absurdly demands that health insurers rate everyone’s health risks the same, cover a long list of “essential health benefits,” and put everyone (including those with extremely expensive health conditions) in one big risk pool, insurers have been able to demand help from Congress in the form of subsidized premiums. Those subsidies cover up the cost of health care even more.
“With Covid-era subsidies, taxpayers are paying for 90 percent of the premiums charged in the [Obamacare] marketplace exchanges,” wrote John C. Goodman, president of the Goodman Institute for Public Policy Research, in Forbes. “If the subsidies are allowed to expire, the taxpayer share drops to 80 percent. That means the government is still paying the lion’s share of the costs.”
Instead of sending this subsidy money straight to the insurance companies, Trump wants to give it directly to Americans to shop for their own plans and pay for their premiums themselves. Consumers will see firsthand the rising cost of premiums because they, not the government, will be paying the bill. Obamacare consumers sending checks directly to insurers will be alerted to rising costs and will be more likely to demand changes to make health insurance more affordable.
Trump notes that “the people will be allowed to negotiate and buy their own, much better, insurance.” That would be a big change. Under Obamacare, there aren’t many options, and they decrease year after year. Trump’s proposed change would increase competition, which pushes costs down by squeezing out inefficiencies because waste reduces profits.
There are other reforms that flow naturally from Trump’s call for Congress to move health care toward a cash system, as it traditionally was before government put it in a stranglehold. An important option is short-term limited duration insurance (STLDI) plans, which are about 60 percent cheaper than the lowest-priced Obamacare plan. The plans do not cover preexisting conditions, and how they are administered depends on who occupies the White House. President Barack Obama tried to limit them to a few months with tight restrictions on renewability.
In 2018, Trump reversed those limits, allowing the plans to last up to 12 months and making them renewable for three years. That offered significant risk protection for consumers. Then, President Joe Biden came in and restricted the plans to three months with a one-month extension, after which consumers would have to start from scratch. That meant if you developed a medical condition during the four months of your plan, a new short-term policy would not cover it.
Trump’s expansion of access to short-term plans halted Obamacare’s upward price spiral until Biden shut it down, notes Cato Institute Health Policy Studies Director Michael Cannon. Restoring Trump’s liberalization and expanding it would give many more people access to more affordable insurance.
“Critics worry that would destabilize ObamaCare,” Cannon wrote in the Wall Street Journal on November 17. “But if that were true, it would have happened while the rule was in effect from 2018 to 2024.” The opposite happened, Cannon notes: “In the years leading up to the Trump rule, ObamaCare premiums soared at an average annual rate of 20%. In the six years when the Trump rule was in effect, ObamaCare premiums remained flat or fell and enrollment grew from 12 million to 24 million. In the two years since Mr. Biden rescinded Mr. Trump’s rule, ObamaCare premiums have risen a cumulative 31%.”
More choice equals lower prices and better service. Those millions of Americans would not have flocked to these plans if they were not a good value. To bring down insurance premiums for everybody instead of just slowing or stopping the Obamacare increases, Trump and Congress will have to go beyond simply putting cash back into consumers’ hands and locking in STLDI. Joel White at the Council for Affordable Health Coverage argues it is important to remove regulations that make it impossible for small businesses to offer health insurance to their workers. Small businesses are the biggest employers in the nation.
“These rules increase costs by 20-50 percent,” wrote White in a recent email thread among free-market reformers. “Partly as a result of these new mandates, small businesses dropped coverage. Currently, more than half of legitimate Obamacare enrollees (12 million) work at a small business, where taxpayers pay subsidies that are three times more than the tax exclusion.”
The tax exclusion is the tax break employers get on payroll taxes when they offer health insurance to their employees.
“These small business workers on Obamacare get higher deductibles (2x more) and worse access to doctors and drugs (80 percent of ACA plans are HMOs or EPOs),” wrote White.
Unlike large group employers, small businesses must offer health plans that provide all the expensive provisions of the Affordable Care Act, such as “essential health benefits,” and adhere to its expensive rating rules. When they can’t afford such plans, they cancel employer-provided insurance, writes White.
White’s organization has long pushed for the government to allow Association Health Plans and let small employers self-insure, two options that would give employers and workers much more choice in health care.
The current system is weak on competition. Competition brings down prices and improves services. Currently, patients have little choice but to get care within big health care conglomerates. The lack of choice allows these big businesses to charge more for less.
To increase competition, Trump would do well to promote reforms that let independent physician health care practices flourish.
“The current regulatory and legislation is openly, blatantly, and unabashedly discriminatory against physicians,” wrote Eric Novack, M.D., in the reform email discussion mentioned above.
At the top of Novack’s list of suggested reforms is mandating site-neutral reimbursement in Medicare. In 2015, Congress changed Medicare’s billing practices to allow higher reimbursements to hospitals for outpatient services. This has incentivized hospital corporations to buy up independent practices and reduce competition.
The Congressional Budget Office estimates site-neutral payments could save taxpayers and patients billions of dollars a year.
Congress should also eliminate the ban on physician-owned hospitals, says Grant Rigney of the Foundation for Research on Equal Opportunity.
“The prohibition was rooted in caution, but its practical effect has been to protect incumbent hospital systems from competition at the expense of patients,” wrote Rigney at the organization’s blog.
Another beneficial move toward cash payment is direct primary care (DPC), a growing and promising way to improve services and lower prices for everyday care, which has become so costly and frustrating to consumers. For a monthly subscription fee of usually $50 to $100, DPC membership typically includes unlimited doctor visits, no copays, wholesale pricing of prescription drugs and medical devices, and free or greatly discounted imaging and lab work.
Allowing tax-free health savings accounts to pay for DPC would expand this consumer- and physician-friendly option and help push prices down. States that regulate DPC as insurance should stop doing so, as DPC is not insurance.
Here’s an indicator of how powerful the price-cutting effect of DPC expansion could be: Back in 2014, a group of public policy reformers one of us was associated with was pushing for the government to start a DPC pilot program for Medicaid. When one of us and a state senator met with Medicaid managed care companies to discuss the idea, the company representatives asked, “Then what would we manage?” The jig was up, and the pilot program never happened.
Obamacare reflects an enormous flaw in the U.S health care system: We are using insurance to pay for routine care instead of limiting it to emergencies that would bust household budgets. That is prepaid care, not insurance. Insurance is a bet we make on the future: I bet X dollars per month that I will get sick and the company will have to pay for it, and the insurance company bets the same amount that I will not. Over time, we both benefit. It is a sensible system.
Forcing people into a scheme of prepaid care managed and overseen by third parties takes power away from individual consumers and hands it to bureaucrats (whether in government or in big business). The third-party payment and management system inevitably pushes prices up: People who don’t pay directly for their care tend to overuse it, and the third-party payers punish that overuse by pushing all sorts of payment-sharing schemes and restrictions on care.
Indemnity-style insurance frees consumers from that trap. It works like auto insurance or homeowners’ insurance. The insurer agrees to pay a specified amount for any particular type of nonroutine care — sending that money directly to the consumer, not the provider. If the consumer negotiates with the provider for a lower price than the insurance payout, the individual gets to keep that money. That puts serious downward pressure on prices and spurs efficiency and innovation.
Congress should make DPC and indemnity-style health insurance more available for everybody. Lawmakers could achieve that and numerous other much-needed reforms to the system by deregulating those options, raising the annual cap on contributions to health savings accounts, and allowing HSAs to be used to pay for insurance coverage.
Writers at our monthly Heartland Institute–Goodman Institute policy newspaper Health Care News have been discussing a way to expand that concept into the government programs by converting Medicaid to a cash-to-recipients basis like food stamps and allowing Medicaid recipients to use that money to purchase the same insurance as everybody else — equalizing their access to care and creating more competition among insurers. That would be a major reform and highly beneficial to recipients and taxpayers alike.
There are a large number of reforms Congress can and should enact to bring down the cost of health care. (For more on all these potential reforms, read Health Care News). Trump’s call to give the Obamacare insurance subsidies directly to patients is a good first step. People not enrolled in Obamacare will certainly sign up for health insurance if they know a government check is on the way. That would help keep them out of emergency rooms and charity care, and it would expand the risk pools, a highly positive effect.
To implement Trump’s cash plan for Obamacare subsidies, Congress would have to make sure to determine how that money would be distributed and that it is not misused. Would payments be made to an airtight health savings account? Can unused funds be rolled over to future years or passed on to family members?
Similar questions would arise regarding some of the other reforms suggested above. Trump’s plan could work as a valuable testing ground for a move toward direct pay for health care services.
Trump’s proposed move toward cash payments and the resulting consumer empowerment is a bold initiative, yet it is just one among many that are necessary and urgent. Trump has an amazing ability to call attention to any matter, and there is no more important public policy problem before us than reining in out-of-control health care spending. Empowering consumers and strengthening competition through direct payment are the answer.
AnneMarie Schieber (amschieber@heartland.org) is the managing editor of Health Care News. S. T. Karnick (skarnick@heartland.org) is a senior fellow of The Heartland Institute, executive editor of Health Care News, and author of the institute’s weekly Life, Liberty Property newsletter.
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