Obamacare vs. Trumpcare: What Income Investors Need to Know

As the battle over healthcare continues, income investors are bracing for greater volatility in the financial markets. In the following article, we’ll provide a high-level overview of the differences between Obamacare and the Senate’s new healthcare proposal.

Click here to know how you can prepare your portfolio for Obamacare repeal.

Commonly dubbed Obamacare, the 2010 Affordable Care Act (ACA) extends health coverage to millions of uninsured Americans. Under the program, the federal government and states share the cost of insuring the poor; the amount Washington pays depends on how much medical care each state’s Medicaid patients receive. Medicaid is a social healthcare program for individuals and families with limited income and resources. Under Obamacare, the federal government pays almost the entire cost of expanding Medicaid to low-income adults without children in the 30 states that have elected to expand their existing programs.

People using the healthcare marketplaces, such as Healthcare.gov, while making less than $48,000 annually receive subsidies to help them buy insurance, with the amount of the subsidy tied to the individual’s income. Obamacare requires Americans to purchase health insurance or pay a tax penalty.

One of the most critical aspects of Obamacare is extending coverage to sick Americans, which means that insurers can no longer deny coverage to people who have pre-existing medical conditions.

Of course, Obamacare policies required a hefty increase in taxes to fund the subsidies. Insurance companies and medical device makers pay more taxes, as do Americans earning $250,000 or more. A bevy of other taxes were also introduced, including the individual mandate, which applies to Americans who can afford minimum health coverage but choose not to do so. Unless they get an exception, they will be required to pay a penalty.

The employer mandate is another new tax that began in 2015 and applied to workplaces with more than 50 full-time workers. Employers in this category must insure all their workers or pay a per-month fee for each of their full-time employees.

Federal officials announced last year that nearly 6.4 million Americans selected Obamacare policies for 2017. That’s 400,000 more than a year ago. Moreover, a recent survey from the National Center of Health Statistics found that nearly 8.8% of Americans – or 28.2 million people – lacked health insurance through the first nine months of 2016. That’s the lowest level on record.

At the same time, however, Obamacare has faced acute funding problems from the get-go. This has resulted in surging premiums, rising deductibles and a general lack of insurance options under the program. Obamacare’s Medicaid expansion has also been a burden on individual states, leaving them with the unenviable position of having to boost health costs, raise taxes or slash spending to cover the program.

Consider this: According to Aetna (AET) CEO Mark Bertolini, Obamacare’s biggest problem is that it’s not fully funded by the government. Against this backdrop, the federal government should provide programs that protect insurers when dealing with high-cost patients and for low-income earners who can’t afford higher out-of-pocket health expenses. Most Obamacare customers receive subsidies that lower the cost of their monthly premiums significantly, making it difficult for health providers to compete. As a result, Aetna went from selling Obamacare plans in 15 states in 2016 to selling them in just four this year. Aetna isn’t the only insurer dropping out of the marketplace. As more insurance companies drop out of the healthcare marketplace, the urgency to replace Obamacare will only grow.

The new GOP-led bill – officially called the American Health Care Act (AHCA) – has set a number of lofty objectives for overriding Obamacare. Chief among them include reducing the number of people eligible for subsidies, reducing the values of the premium subsidies, lowering the cap on subsidy expenditure and fully eliminating the individual and employer mandates. As a result, the Congressional Budget Office expects the Senate bill to result in 22 million more uninsured Americans over the next decade, compared to 23 million under the previous House bill.

The Senate version of the health reform bill aims to replace the current Medicaid program with a fixed-per-capita cap, whereby each state would have a fixed amount of money each year. This means Obamacare’s existing Medicaid benefits would be phased out between 2020 and 2024. This plan winds down Medicaid expansion funding, but not as fast as the previous House bill.

Although the GOP plan would still link aid to individuals’ income, it would stop at 350% of the poverty level, compared with 400% under Obamacare. The Senate healthcare bill would also eliminate the tax penalty and, unlike the House bill proposed earlier this year, would not include penalties for people who do not maintain coverage.

Under the Senate bill, states would have greater flexibility in the waiver program; they would also have more options in scaling back conditions that insurers are required to cover. However, states would not be able to explicitly remove guaranteed coverage.

Principally, Trumpcare would repeal most of the tax burden enforced by the Affordable Care Act and delay the expensive employer-sponsored insurance tax until 2026.

The urgency to replace Obamacare largely stems from insurers dropping out of the healthcare marketplaces, resulting in higher premiums. According to the Kaiser Foundation, 31% of counties will have just one insurer in 2017, up from just 7% last year.

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Several Republicans have publicly voiced their opposition to the GOP-led healthcare bill, with Arizona Senator John McCain declaring it more or less “dead.” In response, President Trump has urged lawmakers to at least repeal Obamacare before replacing it at a later date. This message was reiterated by Senator Ted Cruz, who believes that more time is needed to debate a suitable replacement bill.

At the time of writing, it appears unlikely that President Trump will get the 51 votes he needs to implement the American Health Care Act. This suggests it may be easier for the Republicans to repeal Obamacare initially before working on the new legislation that replaces it.

Obamacare continues to be one of the thorniest issues facing the Trump administration. A failure to move forward on the healthcare agenda could undermine the president’s ability to pursue other pro-growth policies. Any perception of failure on the America First plan could threaten Wall Street’s massive post-election rally, which has been attributed almost entirely to pro-growth optimism under the new regime.

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