Last week, Donald Trump sabotaged the American health-care system because he thought that doing so would advance his political goals. Specifically, the president canceled subsidies to insurers that provide discounted coverage to low-income people. This move will increase insurance premiums in the individual market by nearly 20 percent, while reducing the range of insurance options available to consumers in many parts of the country.
No one disputes this. Trump has publicly suggested that he believes ending these subsidies will accelerate Obamacare’s decline — and thus provide him with the political capital necessary to repeal the law. Senate Majority Whip John Cornyn tacitly acknowledged this calculus early this week, when he suggested that appropriating the subsidies legislatively — so as to avert a rise in premiums — might not be “compatible” with his party’s goal to repeal and replace Barack Obama’s signature law.
So: Trump and his party have decided to deliberately increase the cost of health insurance for many middle-income families, in the hope that doing so will (somehow) make it easier for them to pass their (long-desired) trillion-dollar Medicaid cuts, and deregulatory measures that threaten to make chemotherapy unaffordable for nonaffluent cancer patients.
And, in a display of almost superhuman chutzpah, they have branded this scheme as a populist attack on crony capitalism. The president and his party have congratulated themselves for ending “bailouts for insurance companies.” Trump boasted that his decision had sent insurance stocks plummeting. After a handful of Republican senators signed onto a bill that would appropriate the subsidies — while providing conservatives with some modest deregulatory reforms — their colleagues lambasted the compromise by saying, over and over again, that a “bailout” was unacceptable
It’s easy to see why Republicans have latched onto this bit of rhetoric. The payments Trump canceled do, in fact, go to insurers, not consumers; people hate insurance companies; and “bailout” is a toxic word in American politics. So, railing against bailouts for insurers is a handy way of turning a conscious effort to hurt your own constituents (for the pleasure of your billionaire libertarian donors) into a righteous stand against the insidious influence of Big Insurance over the Democratic Party.
But while the “bailout” line makes sense politically, it’s logically incoherent. Which is to say: It’s a bald-faced lie.
To see why this is the case, we first need to define bailout. In our political discourse, that term typically refers to legislation that funnels billions of dollars into propping up a failing private company, ostensibly because allowing it to collapse would hurt many blameless people. Much of the time, the term is used as a synonym for the 2008 Troubled Asset Relief Program, which plowed $700 billion into stabilizing major Wall Street banks.
Now, Trump and his party are using bailout as a pejorative — they aren’t arguing that Obamacare’s cost-sharing reductions are a prudent measure that will avert a crisis in a major sector of our economy. Rather, they’re suggesting that the subsidies that Trump canceled are undesirable for the same reasons that TARP was. So, a good way to gauge the accuracy of Trump’s charge is to look at the main things that people disliked about the bank bailouts — and see whether those criticisms actually apply to the subsidies that the president ended:
(1) These companies needed government aid because they had made unethical and unwise business decisions. Thus, providing them with such aid created a moral hazard, giving the firms an incentive to repeat their old mistakes.
Insurance companies do not need Obamacare’s cost-sharing reductions because they engaged in illicit or mindless behavior, but because they followed the law. The Affordable Care Act requires participating insurers to provide discounts on their low-income enrollees’ out-of-pocket expenses. For example, if the child of a working-class couple develops a serious illness — and starts piling up co-pays from seeing specialists — insurers must refund enough of these payments to ensure the family can afford their child’s treatment (which is to say, that they can pay for it without risking eviction or malnutrition). Obamacare then promises these insurers that the government will subsequently reimburse them for the cost of the discounts.
By calling these reimbursement payments “bailouts,” Republicans are suggesting that insurers, like the banks before them, need the government to cover their losses because they made bad bets. But this analogy is nonsensical. The entire point of Obamacare is to prevent insurers from screening out risky bets — which, in a health-insurance context, are people with preexisting conditions or limited financial resources.
The more losses a Wall Street bank incurred from issuing bad loans, the worse it was performing its intended function in our economy – to wisely and efficiently allocate credit. By contrast, the more losses an insurer incurred from enrolling severely unhealthy low-income people, the better it was performing its function under Obamacare — to facilitate the provision of affordable medical care to the Americans who need it the most.
Critically, insurers are still required to provide discounts to low-income enrollees. Trump cannot repeal that part of Obamacare unilaterally. He can only refuse to provide insurers the reimbursements that they were promised, and thus, force them to either pull out of the individual insurance market, or raise premiums on the middle-class to finance discounts for the poor.
(2) The firms spent the bailouts on lavish raises for themselves.
Wall Street banks infamously awarded top executives multimillion-dollar bonuses, even as public funds were keeping them afloat. Cost-sharing reductions don’t even cover the administrative costs of providing discounts to low-income enrollees. It’s just a dollar-in, dollar-out reimbursement.
(3) Bailouts cost a fortune, and, thus, produce future tax hikes, spending cuts, or deficit increases.
One could argue that the Wall Street bailouts paid for themselves in the long run. But appropriating the cost-sharing reductions is far less expensive in the immediate term than withholding them. Under Obamacare, people who earn less than 400 percent of the poverty level receive tax credits that cap their premium payments at a certain percentage of their income. So, as premiums increase, the tax credits do, too. And since refusing to pay the cost-sharing reductions leads insurers to raise premiums, canceling the subsidies to insurers effectively increases the amount the government must spend on tax credits for consumers.
The net effect of this trade-off, according to the Congressional Budget Office, is that it will cost the government $194 billion less (over a ten-year period) to pay the cost-sharing reductions, than to withhold them while keeping the rest of Obamacare in place — as Trump is now doing.
In sum: The cost-sharing reductions are a lot like a bailout, except that they reward private companies for socially responsible behavior, can only be used to relieve the financial hardship of low-income people, and reduce the deficit.
It’s almost like the Republican Party isn’t actually opposed to giveaways to insurance companies, but rather to redistributive programs that save working-class people from suffering from bankruptcy or preventable deaths.