President Trump has just taken the first step toward eliminating the huge failures and missteps of Obamacare. But in fixing one problem, he's made another tragic flaw in the health care law worse.
The president signed an executive order today allowing cheaper and less extensive health insurance plans to be sold to the public once again . Obamacare's minimum coverage requirements made those plans obsolete, even though they were often very popular with healthier, younger, and lower income people.
So now, it's going to be a lot easier to get those plans and free market choices will make everything better. Right?
Well, this will do a lot to undo one of the biggest mistakes of the ACA. That is, the idea that compelling younger and healthier people to buy more expensive and comprehensive plans would generate enough money for the insurance companies to cover the sicker and older patients they were now required to cover under Obamacare.
That simply didn't work. First off, nowhere near enough of those younger and healthier people signed up for Obamacare plans even though they got slapped with a tax penalty and even though the venerable Congressional Budget Office predicted they would. While some critics are trying to blame the collapse of the Obamacare exchanges on President Trump's threats, the collapse began with day one of the ACA and its faulty math.
The obvious losers in this new scenario are the Americans with those serious and costly pre-existing conditions. The reason why the insurance companies needed to be compelled to cover them is because they basically make up all of their costs. Remember, the sickest 5 percent of Americans are responsible for more than 50 percent of our annual health-care spending, according to the Agency for Healthcare Research and Quality. With that in mind, it's possible that even if Obamacare had somehow achieved 100 percent public compliance, those costs still wouldn't have been covered.
And looking to the young and healthy to cover that cost wasn't fair in the first place. The younger you are in America, the less likely you are to be rich. In other words, the Obama administration was going after the poorest age demographic to bail out insurers covering somebody else.
Now President Trump is giving those younger, healthier, and most likely poorer Americans new health coverage options. But that leaves us with a problem that could destroy what's left of the private insurance market. If those insurers are still required to cover everyone, how will they stay in business with even less Obamacare plan revenue coming their way than before this change?
On the one hand, many are arguing that President Trump either doesn't care about that or is so focused on gutting Obamacare that people with pre-existing conditions aren't even on his radar. But that wouldn't be an entirely fair assumption given all the work the Republicans put into setting up risk pools and other means to fund pre-existing condition patients.
But those criticizing those efforts as falling short of the likely costs have a point too. Something more needs to be done for those Americans to ensure they have access to care.
Luckily, there are better solutions than shaking down young people. First off, let's remember that working with the U.S. government has been far from a money losing enterprise for the health insurers. While the Obamacare exchange business hasn't panned out with the enrollments they were promised, the big health insurers are rolling in record profits. And those profits are mostly due to their expanding roll of customers due to Medicare Advantage plans.
Now, no government should have the right to just reduce a private company's profits. But in this case where the insurers are making big money by working with the government, is it crazy to force them to take losses elsewhere in their government-related business as a tradeoff? As it stands now, the insurers can just pack up and leave unprofitable Obamacare exchanges without sacrificing their Medicare Advantage cash pile. The Trump team should make a deal there involving some ratio of pre-existing patients covered for every Medicare Advantage customer.
Second, instead of keeping Obamacare's huge Medicaid expansion that has almost doubled the number of Americans on the program since 2007 , the Trump team could find a way to get more pre-existing condition patients on Medicaid by exempting them from some of the maximum income rules. Scaling back the newly expanded Medicaid rolls has raised howls from Democrats and even Republicans like Senator Susan Collins who represent states that rely on Medicaid dollars.
But reversing at least some of the Medicaid rolls to free up funds to help cover the sickest Americans who don't currently qualify is an easier sell politically and financially. And besides, if the government under Obamacare was willing to financially punish younger and less wealthy Americans to cover sicker patients, then why shouldn't it focus more of its charitable health care efforts on those who actually need the most health care in the first place? If pre-existing patients with decent incomes can't get health care because they still can't afford it, they are just as poor as someone with no income who can't get health care because they can't afford it. This is the spirit of the Medicaid law, if not the letter.
These are just two things the administration and both parties in Congress can do to keep the positive aspects of Thursday's executive order alive and alleviate its worst potential negative effects at the same time.
The big question is whether any of the major players in Washington are actually willing to fix our health care cost problems. Scoring political points is a lot easier, after all. But the sight of thousands of seriously ill people going on TV or social media complaining about not having any health coverage might just scare the politicians into action. That's especially true if the politicians in both parties realize just how much the worst case scenarios threaten them both.
Today's move by the president was a strike in favor of more liberty and personal choice for millions of Americans. Now it will take more work to make sure that new liberty doesn't come with an unacceptable price.
Commentary by Jake Novak, CNBC.com senior columnist. Follow him on Twitter @jakejakeny .
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