How to build on Obamacare

The Affordable Care Act is here to stay and if Trump really wants to honour his campaign promises, there is a lot he can do to make it work

obody knew that health care could be so complicated.” So declared Donald Trump three weeks before wimping out on his promise to repeal Obamacare. Up next: “Nobody knew that tax reform could be so complicated.” Then, perhaps: “Nobody knew that international trade policy could be so complicated.” And so on.

Actually, though, health care isn’t all that complicated. Basically, you need to induce people who don’t currently need medical treatment to pay the bills for those who do, with the promise that the favour will be returned if necessary.

Unfortunately, Republicans have spent eight years angrily denying that simple proposition. And that refusal to think seriously about how health care works is the fundamental reason Trump and his allies in Congress now look like such losers.

But put politics aside for a minute, and ask, what could be done to make health care work better going forward? The Affordable Care Act deals with the fundamental issue of health care provision in two ways. More than half of the gains in coverage have come from expanding Medicaid - that is, collecting taxes and using the revenue to pay people’s medical bills. And that part of the programme is working fine, except in Republican-controlled states that won’t let the federal government aid their residents.

But Medicaid only covers the lowest-income families. Above that level, the ACA relies on private insurance companies, using a combination of regulations and subsidies to keep policies affordable. This has worked well in some places. For example, in California, which has tried hard to make health reform work, the number of people with health insurance has soared, while premiums are still well below expectations.

Overall, however, too few healthy people have purchased insurance, despite the penalty for failing to sign up; this is partly because many of the policies offered have high deductibles, making them less attractive. As a result, some companies have pulled out of the market. And this has left some areas, especially rural counties in small states, with few or no insurers.

No, it’s not a “death spiral” — subsidies keep insurance affordable for most people even if premiums rise sharply, and the Congressional Budget Office believes that markets will remain stable. But the system could and should be improved. How?

Spending a bit more...

One important answer would be to spend a bit more money. Obamacare has turned out to be remarkably cheap; the Congressional Budget Office now projects its cost to be about a third lower than it originally expected, around 0.7 per cent of GDP. In fact, it’s probably too cheap.

A report from the non-partisan Urban Institute argues that the ACA is “essentially underfunded,” and would work much better — in particular, it could offer policies with much lower deductibles — if it provided somewhat more generous subsidies. The report’s recommendations would cost around 0.2 per cent of GDP; or to put it another way, would be around half as expensive as the tax cuts for the wealthy Republicans just tried and failed to ram through as part of Trumpcare.

What about the problem of inadequate insurance industry competition? Better subsidies would help enrolments, which in turn would probably bring in more insurers. But just in case, why not revive the idea of a public option — insurance sold directly by the government, for those who choose it? At the very least, there ought to be public plans available in areas no private insurer wants to serve.

There are other more technical things we should do too, like extending reinsurance: compensation for insurers whose risk pool turned out worse than expected. Some analysts also argue that there would be big gains from moving “off-exchange” plans onto the government-administered marketplaces.

So if Trump really wanted to honour his campaign promises about improving health coverage, if he were willing to face up to the reality that Obamacare is here to stay, there’s a lot he could do, through incremental changes, to make it work better. And he would get plenty of cooperation from Democrats along the way.

The point, however, is that building on Obamacare wouldn’t be hard, and wouldn’t even be all that complicated.

Paul Krugman is a Nobel Prize-winning economist and distinguished professor in the Graduate Centre Economics PhD programme and distinguished scholar at the Luxembourg Income Study Centre at the City University of New York.

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