Life, Liberty, Property #125: Trump’s Pivot Could Make Health Care Affordable Again
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IN THIS ISSUE:
- Trump’s Pivot Could Make Health Care Affordable Again
- Video of the Week: Who’s Really Driving Up Your Thanksgiving Grocery Bill? — In the Tank Podcast #520
- The Housing Affordability Crisis Is Real—and Easy to Fix
- Cartoon
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Trump’s Pivot Could Make Health Care Affordable Again
Post by AnneMarie Schieber and S. T. Karnick
[President Donald Trump sent out a very surprising statement on Truth Social last week. Though it applied to a specific policy issue—the expanded Obamacare subsidies which are scheduled to expire at the end of the year—Trump’s statement was surprising because it marked a pivot toward a new perspective on health care reform: cash as king. In this article, guest writer AnneMarie Schieber, managing editor of Health Care News, a newspaper co-published by The Heartland Institute and the Goodman Institute, and Life, Liberty, Property writer-editor S. T. Karnick explain why Trump’s social media post and the thought behind it could guide the way toward momentous positive reforms.—STK]
On November 18, President Donald Trump issued a statement worthy of capital letters:
Trump said trying anything else to reduce the cost of health care would be a waste of time. We think that there are plenty of additional ways to reform the system, and we discuss some of them here. However, the emphasis on putting cash in people’s hands and having them choose their services, instead of giving big companies that money and having them tell consumers how to spend it, is refreshing and absolutely right.
First, let’s recognize how stunning Trump’s statement is. For the first time, a U.S. president has acknowledged a truth well-known among free-market health care reformers: by putting the consumer in charge of the payment, we can restore some of the natural market forces so lacking in health care today. Putting more and more of the nation’s health care on a cash basis would bring down prices, improve services, and foster further positive reforms all across the system.
Since the inception of Medicare and Medicaid in the 1960s established a forceful “third-party payer” approach, health care consumers have become increasingly abstracted from the true cost of these services. Obamacare, starting in 2014, put this system on steroids. When a third party such as an insurer or the government pays the bill, the patient and provider become oblivious to the cost of care.
This has led to massive health care inflation on top of the enormous waste, fraud, and abuse the system creates. Medical care priced at $1,000 in 1965 costs $21,950 today. That’s a 2,195 percent increase, compared to 931 percent for everything else.
The Obamacare subsidies have made matters even worse, and not just for those with Obamacare plans. Because Obamacare absurdly demands that health insurers rate everyone’s health risks the same, cover a long list of “essential health benefits,” and put everyone (including those with extremely expensive health conditions) in one big risk pool, insurers have been able to demand help from Congress in the form of subsidized premiums. Those subsidies cover up the cost of health care even more.
“With Covid-era subsidies, taxpayers are paying for 90 percent of the premiums charged in the [Obamacare] marketplace exchanges,” wrote John C. Goodman, president of the Goodman Institute for Public Policy Research, in Forbes. “If the subsidies are allowed to expire, the taxpayer share drops to 80 percent. That means the government is still paying the lion’s share of the costs.”
Instead of sending this subsidy money straight to the insurance companies, Trump wants to give it directly to Americans to shop for their own plans and pay for their premiums themselves. Consumers will see first-hand the rising cost of premiums because they, not the government, will be paying the bill. Obamacare consumers sending checks directly to insurers will be alerted to rising costs and will be more likely to demand changes to make health insurance more affordable.
Trump notes that “the people will be allowed to negotiate and buy their own, much better, insurance.” That would be a big change: under Obamacare, there aren’t many options, and they decrease year after year. Trump’s proposed change would increase competition, which pushes costs down by squeezing out inefficiencies because waste reduces profits.
There are other reforms that flow naturally from Trump’s call for Congress to move health care toward a cash system, as it traditionally was before government put it in a stranglehold. An important option is short-term, limited-duration insurance (STLDI) plans, which are about 60 percent cheaper than the lowest-priced Obamacare plan. These plans do not cover preexisting conditions, and how they are administered depends on who occupies the White House. President Barack Obama tried to limit them to a few months with tight restrictions on renewability.
In 2018, Trump reversed those limits, allowing the plans to last up to 12 months and making them renewable for three years. That offered significant risk protection for consumers. Unfortunately, President Joe Biden came in and restricted the plans to three months with a one-month extension, after which consumers would have to start from scratch. That meant if you developed a medical condition during the four months of your plan, a new short-term policy would not cover it.
Trump’s expansion of access to short-term plans halted Obamacare’s upward price spiral until Biden shut it down, notes Cato Institute Health Policy Studies Director Michael Cannon. Restoring Trump’s liberalization and expanding it would give many more people access to more-affordable insurance.
“Critics worry that would destabilize ObamaCare,” Cannon wrote in The Wall Street Journal on November 17. “But if that were true, it would have happened while the rule was in effect from 2018 to 2024.” The opposite happened, Cannon notes: “In the years leading up to the Trump rule, ObamaCare premiums soared at an average annual rate of 20%. In the six years when the Trump rule was in effect, ObamaCare premiums remained flat or fell and enrollment grew from 12 million to 24 million. In the two years since Mr. Biden rescinded Mr. Trump’s rule, ObamaCare premiums have risen a cumulative 31%.”
More choice equals lower prices and better service. Those millions of Americans would not have flocked to these plans if they were not a good value. To bring down insurance premiums for everybody instead of just slowing or stopping the Obamacare increases, Trump and Congress will have to go beyond simply putting cash back into consumers’ hands and locking in STLDI. Joel White at the Council for Affordable Health Coverage argues it is important to remove regulations that make it impossible for small businesses to offer health insurance to their workers. Small businesses are the biggest employers in the nation.
“These rules increase costs by 20-50 percent,” wrote White in a recent email thread among free-market reformers. “Partly as a result of these new mandates, small businesses dropped coverage. Currently, more than half of legitimate Obamacare enrollees (12 million) work at a small business, where taxpayers pay subsidies that are three times more than the tax exclusion.”
The tax exclusion is the tax break employers get on payroll taxes when they offer health insurance to their employees.
“These small business workers on Obamacare get higher deductibles (2x more) and worse access to doctors and drugs (80 percent of ACA plans are HMOs or EPOs),” wrote White.
Unlike large group employers, small businesses must offer health plans that provide all the expensive provisions of the Affordable Care Act, such as “essential health benefits,” and adhere to its expensive rating rules. When they can’t afford such plans, they cancel employer-provided insurance, writes White.
White’s organization has long pushed for the government to allow Association Health Plans and let small employers self-insure, two options that would give employers and workers much more choice in health care.
The current system is weak on competition. Competition brings down prices and improves services. Currently, patients have little choice but to get care within big health care conglomerates. The lack of choice allows these big businesses to charge more for less.
To increase competition, Trump would do well to promote reforms that let independent physician health care practices flourish.
“The current regulatory and legislation is openly, blatantly, and unabashedly discriminatory against physicians,” wrote Eric Novack, M.D., in the reform email discussion mentioned above.
At the top of Novack’s list of suggested reforms is mandating site-neutral reimbursement in Medicare. In 2015, Congress changed Medicare’s billing practices to allow higher reimbursements to hospitals for outpatient services. This has incentivized hospital corporations to buy up independent practices and reduce competition.
The Congressional Budget Office estimates site-neutral payments could save taxpayers and patients billions of dollars a year.
Congress should also eliminate the ban on physician-owned hospitals, says Grant Rigney of The Foundation for Research on Equal Opportunity.
“The prohibition was rooted in caution, but its practical effect has been to protect incumbent hospital systems from competition at the expense of patients,” wrote Rigney at the organization’s weblog.
Another beneficial move toward cash payment is direct primary care (DPC), a growing and promising way to improve services and lower prices for everyday care, which has become so costly and frustrating to consumers. For a monthly subscription fee of usually $50 to $100, DPC membership typically includes unlimited doctor visits, no copays, wholesale pricing of prescription drugs and medical devices, and free or greatly discounted imaging and lab work.
Allowing tax-free health savings accounts to pay for DPC would expand this consumer- and physician-friendly option and help push prices down. States that regulate DPC as insurance should stop doing so, as DPC is not insurance.
Here’s an indicator of how powerful the price-cutting effect of DPC expansion could be: back in 2014, a group of public policy reformers one of us was associated with was pushing for the government to start a DPC pilot program for Medicaid. When one of us and a state senator met with Medicaid managed care companies to discuss the idea, the company representatives asked, “Then what would we manage?” The jig was up, and the pilot program never happened.
Obamacare reflects an enormous flaw in the U.S health care system: we are using insurance to pay for routine care instead of limiting it to emergencies that would bust household budgets. That is prepaid care, not insurance. Insurance is a bet we make on the future: I bet X dollars per month that I will get sick and the company will have to pay for it, and the insurance company bets the same amount that I will not. Over time, we both benefit. It is a sensible system.
Forcing people into a scheme of prepaid care managed and overseen by third parties takes power away from individual consumers and hands it to bureaucrats (whether in government or in big business). The third-party payment and management system inevitably pushes prices up: people who don’t pay directly for their care tend to overuse it, and the third-party payers punish that overuse by imposing all sorts of payment-sharing schemes and restrictions on care.
Indemnity-style insurance frees consumers from that trap. It works like auto insurance or homeowners’ insurance. The insurer agrees to pay a specified amount for any particular type of nonroutine care—sending that money directly to the consumer, not the provider. If the consumer negotiates with the provider for a lower price than the insurance payout, the individual gets to keep that money. That puts serious downward pressure on prices and spurs efficiency and innovation.
Congress should make DPC and indemnity-style health insurance more available for everybody. Lawmakers could achieve that and numerous other much-needed reforms by deregulating those options, raising the annual cap on contributions to health savings accounts, and allowing HSAs to be used to pay for insurance coverage.
Our Health Care News writers have been discussing a way to expand that concept into the government programs by converting Medicaid to a cash-to-recipients basis like food stamps and allowing Medicaid recipients to use that money to purchase the same insurance as everybody else—equalizing their access to care and creating more competition among insurers. That would be a major reform and highly beneficial to recipients and taxpayers alike.
There are a large number of reforms Congress can and should enact to bring down the cost of health care. (For more on all these potential reforms, read Health Care News). Trump’s call to give the Obamacare insurance subsidies directly to patients is a good first step. People not enrolled in Obamacare will certainly sign up for health insurance if they know a government check is on the way. That would help keep them out of emergency rooms and charity care, and it would expand the risk pools, a highly positive effect.
To implement Trump’s cash plan for Obamacare subsidies, Congress would have to make sure to determine how that money would be distributed and that it is not misused. Would payments be made to an airtight health savings account? Can unused funds be rolled over to future years or passed on to family members?
Similar questions would arise regarding some of the other reforms suggested above. Trump’s plan could work as a valuable testing ground for a move toward direct pay for health care services.
Trump’s proposed move toward cash payments and the resulting consumer empowerment is a bold initiative, yet it is just one among many that are necessary and urgent. Trump has an amazing ability to call attention to any matter, and there is no more important public policy problem before us than reining in out-of-control health care spending. Empowering consumers and strengthening competition through direct payment are the answer.
—AnneMarie Schieber and S. T. Karnick
Sources: Truth Social; Forbes; OppBlog
Video of the Week
Thanksgiving is approaching, but grocery prices seem to just keep getting higher. We discuss what causes food costs to rise, and how it can be stopped.
The Housing Affordability Crisis Is Real—and Easy to Fix
I’ve been covering the affordability crisis regularly in this newsletter because I think that it is indeed a major problem and that there are plenty of misunderstandings about it. In essence, I differ from many analysts in my opinion that it is a temporary crisis that arose from a brief but exceedingly damaging expansion of a long-term force of government policy: excessive government spending creating inflation which benefits the wealthy and harms everybody else.
“Costs for goods and services are 25% above where they were in 2020,” The Wall Street Journal reported last Friday. The government spending spree of 2020 through 2022 and the failure to return to the pre-pandemic federal budget trend are responsible for that inflation, as I have noted regularly. This is what has hit working people so hard in the past few years. The Journal reports,
Inflation started to pick up in spring 2021 and peaked at 9.1% in June 2022. By the beginning of 2025, the middle class had spent down all their extra savings, often to keep up with higher costs, according to Moody’s. Wage increases weren’t much help—they were consumed by inflation, too.
Free-market policies are the answer, not the problem. Shrinking government would steady the value of the U.S. dollar and spur economic growth that benefits all. This is not a “trickle-down” idea. It is a recognition that everything we get has to be produced by somebody, and that abundance of goods and services arises from efficiency, which proceeds from market forces (which we call market discipline).
Governments purport to impel this production but instead generally impede it. True public goods such as absolutely necessary roads, port facilities, and defense of the nation from invasion (of any type) can add to efficiency, though it is arguable whether any particular example in reality is a net benefit. Forced transfers of income and wealth and intensive regulations that benefit certain politically influential businesses, industries, and dependent constituencies certainly do not aid the production of goods and services, however, and that is the great majority of what government spending has been doing for the past several decades.
That enormous and continuous drain of resources through excessive spending, regulation, and currency devaluation (inflation) is the real reason for the affordability crisis: it transfers power from entrepreneurs and workers to government and big corporations. The way to solve the long-term affordability problem and short-term affordability crisis is to reverse that process.
Kazakhstani writer and researcher Diyar Kasymov captures these realities in an article at Mises Wire. Like me, Kasymov takes the affordability issue seriously and does not assume that the problem is a black mark against market capitalism: “The housing crisis is not a false alarm,” Kasymov writes. “The median rent price went up 25 percent in just 6 years. This is a serious economic problem for America.”
Kasymov argues against rent control, New York City mayor-elect Zohran Mamdani’s proposed solution, as do I:
Only two percent of economists support rent control. But economists, especially mainstream ones, can be wrong quite often. This time, however, they are right. Price controls discourage new supply and exacerbate shortages. Lack of price signals lead to mismanagement of resources, because developers can’t see where houses are needed the most, so developers and landlords have no incentive to rent there, leading to lack of housing which eventually leads to higher prices and lower vacancy rates.
If rents are allowed to increase freely, they would initially go up in certain areas, incentivizing developers and landlords to provide more housing options. This will lead to increased competition and, therefore, falling prices.
Examples of this can be seen all around the world. In California, after the introduction of rent controls in Berkeley and Santa Monica, rental units decreased 8 and 14 percent respectively; in Boston and Brookline, by 12 percent. Housing construction fell by 80 percent in St. Paul after rent control was introduced. Companies were disincentivized from providing rental units, as they felt the reward was not high enough.
In Britain, after rent control was introduced, the share of private renting on the housing market decreased from 50 percent in the 1950s to 8 percent in 1988. Dublin provides another example. The average Dublin resident spends 50 percent of his monthly wage on rent, even though Dublin has one of the strictest rent control laws in Europe, where there are RPZs where rent cannot be pushed up by more than 2 percent a year.
New York City has ample experience with rent control, and it is all bad, Kasymov notes:
New York specifically does not have a great history with rent control. The highest population density and raw population in Manhattan was achieved in 1920. Following that, the first housing regulations were introduced. Since then, population density decreased by 33 percent and population decreased by 600,000 people from 1910 to 2020.
Mamdani and other socialists dismiss this reality by claiming that large corporations are buying up housing and jacking up rents, from which urban residents need the government to protect them. That is not true, Kasymov observes:
Corporations do not own as many homes as you might think they do. In the US, only 1 in 10 apartments are owned by corporations. Only 3 percent of rental property is controlled by institutional investors (those who own over a 100 homes). This metric is only 12.4 percent for large metropolitan areas. This just isn’t enough to cause massive price spikes.
The solution to the housing affordability problem, a growing long-term issue in New York and other large cities, is not less private ownership and further losses of governmental respect for property rights but more of both. In Portugal, which housing-control advocates cite as an example of investor greed, “The root of the problem is overtaxation and overregulation,” Kasymov writes. “The country needs 150,000 homes, but—due to high VAT, strict zoning, and rent control disincentives—developers can only build 28,000 homes this year.”
Zoning, taxes, overregulation, and rent control are major local-level contributors to the long-term housing affordability problem, which has been exacerbated into a crisis by the recent bout of inflation that resulted from government overspending between 2020 and 2022. Zoning is an easy one to fix, yet cities refuse to do so:
Another obstacle in the way of the builders is zoning laws. In many cities, you need approval—not just from the city officials—but from your neighbors too. This leads to a situation where others can choose whether you can build a home or not. This is an inherent conflict of interest, as property owners have an incentive to minimize housing construction in order to drive up the price of their home.
This progressive demolition of property rights destroys housing—both existing housing and the invisible houses that don’t get built because the government makes them unprofitable. Kasymov writes,
We will never solve the housing crisis until we realize that the true cause is not investors or entrepreneurs, but inflation, restrictions, and regulation. If we want affordability, we need more freedom to build, not more controls that scare away builders. You cannot legislate affordability by decree. Only abundance, not regulation, can make housing truly affordable.
The solution to the housing problem is simple: build, baby, build. We will not get that, however, unless and until governments step aside and restore their own respect for property rights.
Sources: The Wall Street Journal; Mises Wire
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S. T. Karnick is a senior fellow and director of publications for The Heartland Institute.
