What We Know About 'TrumpCare' So Far

01/23/2017 04:44 pm ET Updated Jan 25, 2017
Gage Skidmore

Donald Trump’s health care campaign promises stand in stark contrast with the policies proposed by his administration. Moving forward, it’s smarter to examine what his policy proposals say over what he’s said, which are proving to be very different. I’ve detailed what we know about his health care plan through public statements from members of his administration and himself below and will continue to update it as we learn more.

Medicaid Block Grants

Trump and Senior Advisor Kellyanne Conway have both stated their desire to convert Medicaid into a block grant program, a similar proposal to the per capita caps proposed in many Republican ACA replacement plans. During the campaign, Trump promised that he wouldn’t cut Medicaid. However, the Center on Budget and Policy Priorities estimates that converting Medicaid into a block grant program would cut $1 trillion, or 25 percent, from the federal Medicaid budget over the next 10 years.

Medicaid provides coverage for over 70 million individuals and has relied on both federal and state funding to continue growing. Under current health law, the federal government covers an average of 57 percent of state Medicaid costs. In contrast, under a block granted Medicaid program, each state would received a fixed lump sum of financial support from the federal government, dependent on its current or historical health care spending, and would have to pay for any additional Medicaid coverage costs over that sum themselves. Block grants would provide states with less financial support over time compared to current open-ended entitlement policy by setting growth rates of federal Medicaid funding to a slower metric, such as inflation, rather than, under current law, the projected annual growth rate of federal Medicaid spending. As a result, federal funding cuts to Medicaid would increase year-over-year.

Conway argues that block grants will “cut out waste, fraud, and abuse” that drive unsustainable Medicaid cost growth. However, empirical evidence points to the contrary. The Improper Payments Act requires annual audits, and the Medicaid eligibility error rate, that is, recipients who are enrolled but not eligible, is only 3 percent, alone not a significant contributor to Medicaid costs.

Trump’s argument for block grants is that they’ll give states the flexibility to design innovative Medicaid programs. However, federal spending cuts under a block grant program are likely to result in the exact opposite. If Trump’s proposed block grant proposal is similar to the 2017 House budget proposal, which would have cut federal Medicaid funding by $1 trillion over 10 years in addition to cuts from repealing Medicaid expansion, federal Medicaid funding would be expected to decrease by 33 percent by the tenth year of the plan’s passage. To compensate for severe federal funding cuts, state governors have admitted that they would have no choice but to constrict the program, including restricting Medicaid eligibility, capping enrollment, reducing payments to providers, and significantly cutting certain health benefits, including mental health, dental care, and reproductive health. Medicaid was designed to be countercyclical to economic performance. If, during a recession, more people became eligible for Medicaid due to layoffs or reductions in income, states would receive more federal funding. Under a block grant, states will have no choice in a recession but to further restrict Medicaid eligibility and benefits just as more people would have become eligible.

Converting Medicaid into a block grant will, however, require 60 votes in the Senate to pass. It’s unlikely that Senate Democrats will give in to this policy unless it’s added as a provision directly to an ACA replacement plan and they have no other legislative choice to provide Americans with health care coverage.

Health Savings Accounts & High-Deductible Health Plans

High-deductible health plans were originally devised out of basic economic theory–when faced with multiple options for care, patients would make smarter decisions about their care, that is, patients would be less inclined to choose expensive care if a significant portion of the cost of that care was coming out of pocket. These plans both incentivized patients to seek more value in their care and incentivized health care providers to offer them. Over the long-term, it was thought that this combination would reduce health care spending and the price of health care services. The RAND Corporation’s famous Health Insurance Experiment in the 1970s supported part of this theory – those who had to pay more for their care out of pocket, via increased cost sharing, used less health care than those who’s care was covered entirely by insurance – a concept known as moral hazard. High deductibles were thus a tool designed, in theory, to help health care consumers avoid wasteful spending. In practice, however, health economists have debated the extent and impact of the moral hazard argument, many arguing that we do not purchase health care the same way we do most products and services, and that moral hazard is “overblown.” Health policy researchers at Harvard and UC Berkeley, in a 2015 NBER working paper, found that while enrollees on high-deductible health plans with health savings accounts did use less medical care, there was no evidence that they were making smart choices about the kind of care they decided to forgo. Even the results of the initial RAND Corporation experiment supported this conclusion, noting that patients with hypertension on high-deductible plans were less likely to have their blood pressure under control. Patients, in both the 1970s and 2015, were equally as likely to forgo useful, high-value care as they were frivolous care, raising questions about the impact of high-deductibles on long-term health outcomes.

Health Savings Accounts (HSAs) represent the pinnacle of moral hazard theory. Health Savings Accounts programs ask patients to pay for traditional, routine health expenses out of pocket through a tax-free savings account. For catastrophic expenses, i.e., an unforeseen, spontaneous medical illness or emergency, consumers purchase a barebones health insurance plan with a high-deductible.

However, when the people on high-deductible health plans, likely young, healthy people, are paying for the majority of their routine care through their own savings account, older, sicker patients inevitably face a higher cost burden. Traditional health insurance functions on an element of redistribution. Everyone pays in to guarantee that when they need health care, they’ll be covered, and the healthy inevitably cover some of the costs of the sick. However, if young, healthy people begin to cluster around cheap, barebones plans with low premiums and those with pre-existing conditions cluster around expensive, comprehensive plans, the people who need health care most often and most extensively will be left paying significantly higher costs.

High-risk Pools

High-risk pools are insurance programs that offer a separate insurance pool for enrollees with medical conditions that require expensive care. Republicans have sold this idea by arguing that, by creating separate pools for those with costly illnesses, the minority, and those who are relatively healthy, the majority, insurers could offer cheaper premiums to the latter. Those with potentially expensive pre-existing conditions would be charged much higher prices and insurers would also rely on government financial support to cover the costs of their care. Prior to the ACA, high-risk pools were common; however, they often shut down or significantly restricted coverage when the financial cost of covering sick patients surpassed both the high insurance costs that patients paid and the additional government funding provided for those pools. In many instances, insurers refused to cover people with pre-existing conditions because they were afraid of losing money. In the cases where patients did receive insurance, the offered benefits package often excluded coverage for their pre-existing condition and capped the total payments that could be spent on medical care for each patient. It’s possible that high-risk pools could be more effective than they were pre-ACA if government subsidies were, in addition to covering low-income enrollees, directly provided to high-risk individuals to cover health insurance costs, as proposed by Dr. Mark Pauly, health economist at the University of Pennsylvania, but that design remains yet to be seen in Republican health care plans.

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