Will Trump follow through with an ACA repeal?

November 11, 2016

In this commentary, Gerard J. Wedig of Simon Business School discusses the many possible implications of a Trump presidency.

Among the many possible implications of a Trump presidency for health policy, a couple stand out. 

First, pharmaceutical stocks have responded positively to the election result. Presumably, this is because many people expected that a Clinton administration would be characterized by a crackdown on drug prices. This is because the federal government, through the Medicare program, is a significant purchaser of drugs and, to date has not used its position to bargain aggressively for lower prices. 

Clinton had implied that drug prices would be reduced, while Trump has been less clear about this. Interestingly, Trump has suggested that his administration may allow drug reimportation, but this possibility seems to be discounted for now.

The biggest question

Perhaps the biggest question raised about a Trump administration has to do with the fate of the Affordable Care Act (ACA). After all, at the close of the campaign Trump repeatedly promised a fast “repeal and replace” of the ACA, possibly with a special session of Congress.

Let’s consider what is possible. Given that the Republicans lack a supermajority (60 votes) in the senate, an out and out repeal of the ACA seems out of the question. However, the Republicans should be able to use their majority (52 votes) to repeal those aspects of the bill that directly affect government revenues and costs including:

·      The individual mandate (which includes fines), exchange subsidies;

·      The employer mandate;

·      Corporate and individual taxes; and

·      Medicaid expansions. 

Indeed, Congress passed a bill to this effect recently, in the full knowledge and expectation that President Obama would veto it, which he did. With a President Trump, it will be possible to pass such a bill again and have the bill signed.

Will a repeal happen?

Interestingly, the question is, will they do it? It is one thing to pass a bill that one knows will be vetoed (to make a political point with one’s base) and another to pass a bill that will be signed. Is there any reason to believe the Republicans would not follow through?

There are several reasons that may give them pause. First, Republicans will need to find something to replace the insurance that about 20 million people have received from the ACA.

Here, a two-pronged approach seems likely or at least possible. Under one part, people of lower incomes might receive tax credits conditional on the purchase of a private plan. Under a second part, states may receive block grants to flexibly expand their Medicaid programs. However, even these alternatives may take time to design and build a consensus for. This may delay the process of repeal. 

Even if a repeal comes about, it may have to be phased in so that individuals who have acquired insurance can smoothly bridge the transition between Obamacare and any new program.

Finally, even if major parts of the ACA survive, it’s not clear what the patchwork quilt of remaining provisions will imply, including regulations on insurers. For example, suppose that the requirements that insurers accept all risks and charge the same rates (community rating) are preserved from the ACA while the individual and employer mandates are repealed. This would create massive adverse selection as healthy people will increasingly avoid purchasing insurance at rates that effectively subsidize the less healthy.

So, where does this leave us? My guess is that the Trump administration will reform healthcare in some way, including repealing some parts of the ACA. However, Trump will not be willing to sign a bill without an alternative in place. This may take some time (up to a year).

 

 

Gerard J. Wedig is associate professor of business administration, Simon Business School, at the University of Rochester.