The Trump Administration’s Stealth Reformation of the ACA and Its Application to the Next Maine Governor (Adam Cote)

In a May 2017 op-ed to the Portland Press Herald I outlined a bipartisan path to healthcare reform: expand coverage to the 29 million uninsured while deregulating the non-group health insurance market, letting “the government fund it, and the free market run it.” This recommendation was based on the principle that the proper role of government is to fund goods and services that fail to meet the free market’s “return on investment” hurdle rate.

If we can agree that the free market – not government – is the best vehicle, albeit an imperfect one, for increasing our standard of living over time, then we can agree that the government must stay out of the way of the free market to the greatest extent possible. Because the free market operates according to “return on investment” (ROI), by mathematical definition the free market will refuse to fund goods and services that do not generate an appropriate ROI, such as national security, education, public infrastructure, and a social safety net. But as any objective observer knows, the government is terrible at implementation due to its inherently bureaucratic nature – hence, “let the government fund it and the free market run it.”

Switzerland’s healthcare market represents a picture-perfect template for the proper role of government and healthcare reform, as outlined via the Economist (my emphasis):

“Finally, in the Netherlands and Switzerland, health insurance is handled almost entirely by private insurance companies, and doctors and hospitals are generally private. Coverage is universal because citizens are legally obliged to buy it, which ensures that healthy people stay in the system, holding insurers’ costs down. The government keeps premiums affordable by pumping in generous subsidies, and bars insurers from rejecting those with pre-existing conditions. It also regulates providers in order to control expenses.”

In its quest to expand the administration state, the Obama Administration greatly overstepped the above-outlined bounds of government with the Affordable Care Act (ACA). Instead of a bipartisan-friendly, single-page bill that expanded coverage via a “public option” and imposed an individual mandate, the ACA was a convoluted regulatory behemoth that unnecessarily burdened the non-group health insurance market while necessarily expanding Medicaid and imposing the individual mandate. Campaigning for his wife in Flint, Michigan during the 2016 presidential campaign, Bill Clinton said as much:

“The people that are getting killed in this deal are small-business people and individuals who make just a little too much to get any of these subsidies. Why? Because they are not organized; they don’t have any bargaining power with insurance companies, and they’re getting whacked. So you’ve got this crazy system where all of a sudden 25 million more people have health care and then the people that are out there busting it – sometimes 60 hours a week – wind up with their premiums doubled and their coverage cut in half. It’s the craziest thing in the world.”

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The GOP’s failure to “repeal and replace” the Affordable Care Act was likely a blessing in disguise, as it allowed the Trump Administration to deregulate the non-group health insurance market, via a series of executive actions, while maintaining the expanded coverage provided by Medicaid. (I say likely, because there was a chance the Medicaid block grants were ultimately paired with higher levels of funding, which would have been the Goldilocks scenario of “letting the government fund it and the free market run it” since the states in that case would be equivalent to free market operators.)

The first executive action, an executive order signed January 20, 2017, immediately defanged the ACA’s non-group health insurance market regulations. (It is worth noting that the EO likely did not receive its due attention given it was President Trump’s very first EO as POTUS.) The money quote:

“…pending such repeal, it is imperative for the executive branch to ensure that the law is being efficiently implemented, take all actions consistent with law to minimize the unwarranted economic and regulatory burdens of the Act, and prepare to afford the States more flexibility and control to create a more free and open healthcare market.”

Second, on October 12, 2017 Trump announced the termination of the CSR payments, and signed an executive order that paved the way for expanded access to association health plans, short-term insurance, and health reimbursement arrangements. Terminating the CSRs had an incredibly positive, two-fold long-term effect, precisely along the lines of my “let the government fund it and the free market run it” mantra: By not paying insurance providers directly via the CSR payments, providers could price non-group insurance plans according to free market supply/demand principles; and because the Obamacare tax credit subsidies are linked directly to premiums, those eligible for premium subsidies would see almost no change in cost, thus maintaining coverage (and in fact expanding it, per the CBO).

And lastly, as promised follow-up to the October 12, 2017 EO, on January 4, 2018 the Department of Labor proposed a rule that would expand access to association health plans that could be purchased across state lines.

Add it all up, and the Trump Administration has done an incredible job of reforming the ACA in a coverage-friendly manner. And while I do worry that a welfare reform push in 2018 could bring Medicaid cuts back on the table, I believe that Trump’s campaign commentary about universal coverage and his insistence that the GOP’s “repeal & replace” plan was “too mean” indicates he will lean heavily against ideologically-driven spending cuts.

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The healthcare industry’s egregious lack of price transparency and cost controls make it ripe for a tech-led transformation, of which the recently announced merger of CVS and Aetna is a good example. In response to Amazon’s potential deflationary entrance into the drug distribution business, Pharmacy Benefit Manager CVS announced an unorthodox “vertical” merger with health insurance provider Aetna. The PBM industry is one of the biggest beneficiaries of the lack of price transparency, so anything that shines a light into the PBM black box is highly consumer-friendly.

Maine’s next governor (Adam Cote) can and should take full advantage of this tech-led healthcare revolution. With an aging populace, heavy reliance on government health insurance funding, recent passage of a Medicaid expansion referendum, and moderate political bent, Maine is in pristine position to become an innovative bastion of reform.

As outlined in a recent op-ed to the Portland Press Herald, the most profitable path forward to transforming Maine’s economy is the development of a global technology hub north of Bangor. I cited three key technologies on which to focus the development: artificial intelligence, the Internet of Things, and blockchain. All three of these technologies will prove integral to transforming American healthcare, thus making Maine’s concurrent economic transformation and healthcare reform focus a mutually beneficial endeavor for Maine and the rest of the Country.

According to US Census data, Maine’s uninsured population was 106,000 at the end of 2016, or 8 percent. If the 80,000-person Medicaid expansion is signed into law, the uninsured rate would drop to just 2 percent, or 26,000.

With innovative technological reform and close cooperation with the “regulatorally” creative Trump Administration, I believe that the next Maine governor (Adam Cote) can stretch the pro forma Medicaid budget to cover the bulk of the remaining 26,000…and if innovative enough on the regulatory front, perhaps could attract even more federal dollars.

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Large-scale economic reform requires a pragmatic, politically independent policymaker at the helm – not an ideological hack. The formula for success is painfully simple: work backwards from end goal to policy solution, while keeping the government confined to its proper role of providing goods and services that do not meet the free market’s ROI hurdle rate.

Democratic gubernatorial candidate Adam Cote is precisely who Maine needs to drive its economic transformation. Unlike the ideologically-driven political hacks running against him that claim to “have no grand economic plan,” Adam Cote’s number one priority is to grow the Maine economy. And as evidenced by his commitment to heed the will of the Maine electorate and sign Medicaid expansion, Cote is well attuned to the proper role of government.

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