Donald Trump deserves credit for coming out with a sketch of an Obamacare alternative. Unfortunately, his plan would not rescue us from Obamacare. Instead, it would further balloon the national debt, keep one of the worst parts of Obamacare in place, not encourage people to shop for value, keep health costs artificially high, and apparently expand Medicaid even beyond Obamacare's bloated levels. It would likely make John Kasich's embrace of Obamacare's Medicaid expansion in Ohio look like child's play.
There are four main interconnected problems with Trump's alternative:
First, Trump would keep one of Obamacare's worst parts: its preexisting-condition mandate. While it's not in the written part of his plan, Trump is repeatedly on record emphasizing his support for Obamacare's requirement that insurers must cover those who wait to buy so-called insurance until they're already sick or injured—and without charging them higher prices than those who have paid their premiums all along. He has said, "I want to keep pre-existing conditions. I think we need it. I think it's a modern age. And I think we have to have it." On another occasion, he said of the preexisting-condition mandate, "I like the mandate."
This coercive mandate, however, is akin to a federal mandate that homeowners insurance companies should have to cover people whose houses have already burned down. It undermines the very notion of insurance, which dates back at least to the Renaissance—namely, that one must buy insurance before the thing happens that one is buying protection against. Under a mandate that undermines this core notion, costs skyrocket—as we've seen under Obamacare. In fact, they'd likely skyrocket even more if Trump were to keep Obamacare's preexisting-condition mandate and repeal its individual mandate, as the latter (unconstitutional and un-American as it is) provides something of a check on the ill-effects of the former. In short, plans under Trump's alternative wouldn't be cheap—and could cost even more than under Obamacare.
**Second, instead of closing the current tax loophole for high-end employer-based health insurance, Trump would open up a new tax loophole for high-end individually purchased insurance—despite our $19 trillion debt.** To be clear, it's politically unwise to propose changing the tax treatment of the typical American's employer-based plan (like John McCain did)—and Trump showed good instincts in avoiding that approach. But there's no reason why the tax break for employer-based insurance should be open-ended.
Trump would not only leave that tax break open-ended; he'd institute a new open-ended tax break for individually purchased insurance. This would provide a perverse, government-created incentive for people to buy lavish prepaid health plans, rather than the sort of genuine insurance that protects against catastrophic events but leaves people in control of their own day-to-day health-care dollars. In short, this provision would increase the debt (by opening up a major new tax loophole), while at the same time raising health costs (by making people less apt to shop for value).
For example, take a very well-off married couple (ages 44 and 34), making $300,000 a year, with one kid and a marginal income-tax rate of 33 percent. If they buy a $25,000 health insurance plan, Trump would give them a $8,250 tax cut for doing so (33 percent of $25,000). (Under the Obamacare alternative I've proposed—which Ed Gillespie ran on when he almost pulled off the upset of the night in the Virginia Senate race—they'd get a comparatively modest tax cut of $4,200.) If, however, this couple decided to buy a $50,000 insurance plan, Trump would give them a tax cut of $16,500—twice as much. (Under my alternative, they'd still get the same $4,200 tax cut, as they wouldn't be rewarded for buying a more extravagant plan.)
In other words, under Trump's plan, the more people spend, the more they'd save (in taxes)—and the more the deficit would rise.
**Third, because Trump would offer an income-tax deduction, not a tax credit, he would offer little to the working-class voters whose support has been essential to his rise, and nothing to the 40-some percent of Americans who (unfortunately) pay no income tax.** Take the typical 36-year-old single woman making $36,000 a year, with a marginal income-tax rate of 15 percent, who buys basic health insurance costing $1,800 annually. Under Obamacare, she gets nothing—she's too young and too middle class. (Obamacare is for the near-poor and near-elderly, at the expense of the middle class and the young.) Instead, she has to buy her insurance without the benefit of a tax break, even though her next-door neighbor with employer-based insurance gets a tax break for his coverage.
Under Trump's plan, she'd get a $270 tax cut (15 percent of $1,800)—peanuts compared to the $16,500 tax cut he'd give to the family making $300,000. (Under my alternative, she'd get a much larger tax cut—$2,100—$1,800 of which would cover her premiums, $300 of which she'd be able to deposit into a health savings account. A lot of Main Street Americans could certainly use such a tax cut.)
Take another example, this time of a 34-year-old married couple, with three kids, living in Milwaukee and making $50,000. Obamacare provides a direct subsidy to an insurance company on their behalf in the amount of $10,600 to use on government-approved insurance bought through a government-run exchange. Under Trump's alternative, if they were to buy, say, a $7,000 insurance plan on the open market, they'd get a tax deduction of exactly $0—as they don't pay income tax. (Under my alternative, which nonpartisan scoring has found would cut federal spending by more than $1 trillion, they'd get a refundable tax credit of $5,100—less than half of what they'd get under Obamacare but enough to help keep them insured.) Under Trump, this family would simply lose their $10,000-plus subsidy, and as a result…
Fourth, under Trump's plan, millions of middle class Americans would be dumped into Medicaid. According to the Congressional Budget Office, most of those who have become "newly insured" under Obamacare have really just been added to the Medicaid rolls. Trump's plan seems poised to expand those rolls even further. His plan says he "would make sure that no one slips through the cracks simply because they cannot afford health insurance." Thus, it says, "We must review basic options for Medicaid and work with states to ensure that those who want healthcare coverage can have it." Elsewhere during this campaign, he has promised, "I am going to take care of everybody," and "the government's gonna pay for it."
If Trump wouldn't put families like the one above—who would lose their 5-figure Obamacare subsidy—on Medicaid, then his proposal would result in a huge increase in the number of people without insurance. In that case, it would be a political nonstarter and wouldn't lead to repeal. So under Trump's plan, we'd end up with one of two results: (A) Obamacare; or (B) an alternative that would expand Medicaid even beyond Obamacare's levels.
Americans deserve a lot better than an Obamacare alternative that wouldn't lead to repeal. And they deserve a lot better than one that would repeal Obamacare but would further undermine our fiscal well-being, keep (if not exacerbate) Obamacare's high health costs, retain one of its most damaging and hubristic mandates, and build upon—rather than undo—its huge Medicaid expansion.