Politics & Policy

How Donald Trump Could Fix Our Health-Care System While Cutting Our Taxes

(Dreamstime image: Syda Prods.)
A better approach to health insurance would put more money back into voters’ pockets.

If Donald Trump and the Republican Congress have a mandate to do anything, it is to repeal Obamacare. The law is already cratering. Sick enrollees, former president Bill Clinton laments, are seeing “their premiums doubled and their coverage cut in half.” Even supportive economists admit the program is in a death spiral.

Repeal won’t be easy. But if Trump sets for Congress the same agenda he laid out during the campaign, he could become America’s greatest health-care reformer, all while cutting taxes more than Ronald Reagan and George W. Bush combined.

During the campaign, Trump promised legislation that “fully repeals Obamacare and replaces it with Health Savings Accounts, the ability to purchase health insurance across state lines, and lets states manage Medicaid funds.” Here’s how he can work with Congress to fulfill that pledge.

1. Fully repeal Obamacare.

Full repeal requires eliminating every penny of Obamacare spending, as well as every last mandate and regulation. Trump should ask Congress to send him a stand-alone bill repealing all these provisions. By the same token, he should pledge to veto any effort to preserve any of Obamacare’s regulations, mandates, or spending.

Some Republicans, including Trump’s reported pick for Health and Human Services secretary, Tom Price, want to modify rather than repeal Obamacare’s misnamed “preexisting conditions” protections — the very provisions causing the high premiums and lousy coverage Bill Clinton laments — and keep the subsidies to insurers that Obamacare disguises as “tax credits.” This “Obamacare-lite” approach would accelerate the degradation of coverage for the sick while preserving all the problems the individual mandate creates, and it could increase spending even more than Obamacare.

By contrast, full repeal would cause health-insurance premiums to fall for the vast majority of exchange enrollees. And it would open the door to the following reforms, which would make health care better, more affordable, and more secure for hundreds of millions of Americans.

2. Replace Obamacare with health savings accounts (HSAs).

Currently, HSAs allow Americans to control only a portion of their health-care dollars tax-free. The tax code continues to penalize workers unless they surrender an average $5,000-$13,000 of their earnings to their employer, who then gets to decide what type of health-insurance plan they receive. Over the next ten years, this penalty will let employers control $9 trillion of their workers’ earnings.

Senator Jeff Flake and Representative Dave Brat have introduced legislation to expand HSAs in a way that lets workers take possession of those funds, tax-free. So-called “large” HSAs would return $9 trillion to the people who earned it. That’s an effective tax cut larger than the Reagan and Bush tax cuts combined, and nine times more than the effective tax cuts represented by a Congressional Obamacare repeal.

Workers could save their Large HSA balances, use them to purchase medical care, or use them to purchase the health plan of their choice, all tax-free. The uninsured and uninsurable would get a big tax break on their medical expenses. Large HSAs would benefit the poor most of all when 160 million newly cost-conscious consumers put downward pressure on health-care prices.

3. Let Americans purchase health insurance across state lines.

Letting consumers and employers buy insurance licensed by states other than their own would further reduce the cost of coverage. The Congressional Budget Office has estimated that allowing small employers to avoid unwanted regulatory costs would reduce premiums by an average of 13 percent. Congress and the president should fight to give all individuals and employers this freedom.

4. Let states manage Medicaid funds.

Trump should direct Congress to convert federal Medicaid funding to “block grants.” Each state would get a fixed amount of money from the federal government that does not vary from year to year, combined with full flexibility to administer their programs.

Building on the success of welfare reform, block grants would give states the incentive and flexibility to target Medicaid funds to the truly needy, while removing from the rolls millions of people who could obtain coverage on their own. States could keep covering every single Obamacare Medicaid-expansion enrollee if they wished, or establish high-risk pools for former exchange enrollees with preexisting conditions.

Critics will complain that these reforms don’t provide health insurance to everyone. But guess what? Neither does Obamacare. These simple steps would mean fewer poor and sick patients falling through the cracks of America’s health-care system than ever before. And that would be a legacy for the history books.

Michael F. Cannon — Mr. Cannon is director of health-policy studies at the Cato Institute and co-author of Healthy Competition: What’s Holding Back Health Care and How to Free It.

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