Despite what you may have heard, President-elect Donald Trump is determined to follow through on his campaign promise to repeal and replace Obamacare. His decision to appoint Rep. Tom Price, a former orthopedic surgeon and fierce Obamacare critic, to head up the Department of Health & Human Services (HHS) is the strongest signal Trump could send that he is serious about it.
But repealing and replacing Obamacare will be a tricky job. Without a 60-vote majority in the Senate, an outright repeal is unlikely. Portions of Obamacare are probably going to survive, at least for another election cycle. Republicans in Congress can and will use the reconciliation process — which only requires a simple Senate majority — to address Obamacare-related spending and revenue provisions, but reconciliation can only get them so far. Additional alterations to Obamacare will have to come through the HHS administrative rule-making process.
Even under the most optimistic repeal and replace scenarios, it’s going to take years to transition away from Obamacare toward a new health care reform framework. Implementing Obamacare was a herculean, multiyear effort; dismantling it could be even more difficult, especially with 20 million Americans currently accessing free or heavily subsidized health care coverage under Obamacare today. Any number of hasty actions could cause severe distress, both in the health insurance market and politically.
My bet is that the Trump administration will focus first on stabilizing the individual insurance exchange market, which has been plagued the last couple of years with huge premium increases. While the administration could take any number of steps, I suspect they will focus on three key initiatives.
First, I expect the Trump administration will attempt to loosen health insurance age rating bands. Under Obamacare, health insurance companies are required to use a 3:1 age rate band (a ratio of premium variance between the oldest and youngest members of a plan). Historically, health insurance companies used either 5:1 or 6:1 age rate bands when setting premiums. By loosening the age rate band ratio, insurers will be able to lower health insurance premiums for the “young invincibles,” bringing many of them back to the health insurance market.
Second, the Trump administration will try to ditch Obamacare’s unpopular individual mandate to purchase insurance, along with the mandates’ associated penalties. I suspect that the Trump administration will seek to replace the individual mandate with a requirement that people purchase and maintain health insurance for a period of time before insurance companies are obligated to cover pre-existing conditions. Today, under Obamacare, there is a powerful financial incentive for consumers to only purchase health insurance when they are desperately ill. Why pay health care premiums while you are healthy when you can easily get covered after you get sick? Scrapping the ineffective and unpopular individual mandate in favor of a “continuous coverage” requirement for pre-existing conditions — perhaps similar to the one used in the traditional Medicare program — will help remove the perverse Obamacare incentive for healthy people to NOT purchase insurance until after they get sick.
Third, the Trump administration will seek to drive additional competition into the insurance market by allowing insurance companies to sell across state lines. On its surface, this sounds like a simple, market-focused idea, but it will be more difficult to pull off than most people realize. For example, out-of-state insurance companies will need to contract with in-state health care providers in order to service in-state customers. It is not entirely clear to me how this will generate incremental savings for consumers, although more competition in the health insurance market couldn’t hurt.
I’m excited to see how all of this plays out.