Say what you will about Obamacare—at least President Obama eventually took ownership of it. When it comes to the American Health Care Act, President Trump isn’t ready to do that. He’s discouraging people from calling it “Trumpcare.” Since Trump normally he puts his name on everything within reach—even the trash can liners at the Trump SoHo Hotel bear his moniker—he must be keeping his distance from the AHCA because he’s ashamed of it.
The editors of The New York Times think he should be. They accuse Trump and the rest of the GOP of “Trading Health Care for the Poor for Tax Cuts for the Rich.” The charge is based on the CBO’s prediction that Trumpcare will immediately cause 14 million Americans to lose their coverage through private insurers or Medicaid, with that number rising to 24 million by 2026. Adding those people to the existing un-covered population, 52 million Americans will be uninsured a decade after Trumpcare incepts.
The consensus among policy wonks on the left and the right is that this would be a disaster for the country. Rolling back Medicaid will harm the states that expanded their programs on the promise that the federal government would pick up the tab. It will damage hospitals and other providers too as the demand for charity care goes through the roof. The newly uninsured will suffer worst of all. Without private insurance or Medicaid to rely on, many will forgo needed medical treatments and all will face the risk of financial catastrophe associated with serious injury or illness. All of these possibilities worry Republican governors and legislators, who fear losing office when the healthcare sector revolts and voters take revenge at the polls.
One can, however, see the GOP’s predicament as an unparalleled opportunity. Instead of vewing the 52 million un-covered Americans as pathetic creatures with nowhere to turn, one could regard them as an enormous army of consumers who will have to buy their own healthcare and who will be hungry for medical services that are effective and cheap. If we were talking about housing, transportation, energy, food, clothing, televisions, cell phones, or computers, we might already see them that way.
These other goods are all things that people pay for themselves, without the help of insurance. They are also all things that retailers have figured out how to deliver to people of limited means. Consider H&R Block, a timely example given that the April 15th filing deadline is nearing. H&R Block has figured out how to make a buck preparing returns for poor people who want earned income tax credits and refund anticipation loans. Markets will not deliver the best goods or services to the poor—poor people are rarely in the market for those things. But markets do a wonderful job of delivering what poor people can afford, and they reward sellers for figuring out how to serve poor people better.
Could markets help the army of the un-covered get what its members need too? That will depend on how much money its members have to spend. Suppose that the average un-covered person would willingly pay $2,000 a year for health care. The un-covered army would then be a potential source of $104 billion in annual aggregate demand. That’s real money that health care businesses should be interested in earning. $2,000 a year should be enough to take care of most of the un-covereds’ medical needs too. Singapore shows that. It spends only $2,500 per capita on healthcare for all of its residents, with fabulous results. Its infant mortality rate is half of ours, and its citizens’ life expectancy at birth is 5 years longer. Singapore relies heavily on direct payment for medical services too. If American healthcare providers operated as efficiently as those in Singapore, the army of the un-covered would fare reasonably well.
As currently written, though, Trumpcare neither guarantees that the un-covered will have any minimum amount to spend on healthcare nor provides any impetus for American healthcare businesses to become more efficient. Fortunately, both shortcomings have the same fix. Trumpcare provides tax credits that range from $2,000 to $4,000 per person, up to $14,000 per family. That’s enough money to turn the army of the un-covered into a formidable purchasing force. Right now, though, the credits are only available to people who buy insurance. That restriction could be eliminated with the stroke of a pen, and should be. If the credits were available to everyone, including the un-covered, Trumpcare would add an enormous stimulus to the market in consumer-driven healthcare.
Stimulating the retail market would have many desirable effects, the most important being that it would give providers strong incentives to make healthcare cheaper. One of the main reasons that American medical services cost too much is that people pay for them with insurance far too often. The more we rely on third party payers to do our shopping for us, the less we care about costs and the more expensive healthcare becomes. By giving money to bargain-hunting consumers, Trumpcare should reduce the impact of insurance-driven demand on the prices that medical providers charge. It should also greatly reduce the rate at which unnecessary medical services are delivered.
The GOP could also improve Trumpcare by adding supply-side reforms that would remove barriers to competition. The bill should pre-empt state laws that prevent doctors from practicing across state lines; that forbid nurse practitioners, physician assistants, and other para-professionals from setting up shop independently; and that inhibit pharmacists from teaming up with doctors, nurses, or PAs and delivering the full range of services that their combined training qualifies them to provide. It should also eradicate Certificate of Need requirements and laws that prevent corporations from running healthcare businesses. Walmart, Costco, CVS Health, and other retailers already operate clinics, pharmacies, audiology centers, and optometry outlets that charge affordable prices for flu shots, routine medical services, hearing aids, drugs, eye exams, and glasses. They will bring down the costs of other medical treatments and services if we let them sell those too.
The deep irony, then, is that although Trumpcare is supposed to repeal and replace Obamacare, both programs have the same goal. Both encourage people to stay in our dysfunctional, third-party-payer-dominated healthcare system by maximizing the use of insurance. But as long as healthcare itself is over-priced, healthcare insurance must be over-priced too. Trumpcare should therefore focus on making medical services cheaper. It should target excessive service levels, absurd prices, rampant fraud, and other major cost drivers. It can do all of that (and more) by turning healthcare purchasing over to consumers. Once that happens, prices and spending will fall, and coverage against catastrophes will become affordable. Because poor people are very price-sensitive, they will benefit the most. If we allow them to lead, the rest of the healthcare system will follow.
Charles Silver is a professor at the University of Texas School of Law. David Hyman is a professor at Georgetown University School of Law. They are leading medical malpractice researchers, and co-authors of After Obamacare: Making American Health Care Better and Cheaper (forthcoming).