‘A Big Price’

Trumpcare’s Cruel Magic Thinking

This is bad economics and abuse of taxpayers. More importantly, it is inhumane.

On day one of his presidency, President Donald Trump took over ownership of the mess that is America’s healthcare system. Both politically and practically Trump’s action placed full responsibility for improving on the Affordable Care Act, aka Obamacare, on his administration and the Republican-controlled Congress.

The executive order Trump signed hours after taking the oath of office makes clear that the 18 million or so Americans with insurance now who lacked it before Obamacare will suffer first. We’ll come back to just what the president ordered and what it means for healthcare economics, but first let’s examine what a faithful Trump courtier said on NBC’s “Sunday Today” on Jan. 22 that revealed harm to the poor is central to Trumpcare.

What Happens to Medicaid

Kellyanne Conway, counselor to the president, said that under Trump the federal healthcare plan for the poor, Medicaid, would be run by the states. Each state would get a fixed sum of money, known as a block grant.

How would Washington writing checks to Tallahassee and Lansing benefit poor people on Medicaid?

“You really cut out the fraud, waste and abuse, and you get the help directly” to people, Conway told “Sunday Today.”

That’s magical thinking. Well, to be fair, it also may fall under the heading of Conway’s “alternative facts,” a euphemism for officially approved Trump administration lies that she introduced that same day on another NBC show, Meet the Press, in reference to debates over how the size of the crowd that watched Trump’s inauguration. (More about that later.)

Block grants do exactly nothing to prevent fraud, waste and abuse.

That’s achieved with strong internal financial controls to prevent improper payments, intensive audits of healthcare providers and large teams of investigators and prosecutors who obtain civil forfeitures and, in extreme cases, convictions will reduce the inclination to lie, cheat and steal from Medicaid.

Having an administration that demands integrity of its appointees and is nearly scandal free—like those of Obama and FDR—enhances well-funded and aggressive law enforcement against this type of white-collar crime.

A Growing Risk of Medicaid Fraud

The Republicans in Congress who voted more than 50 times to repeal Obamacare could have funded policies that actually reduce fraud, waste and abuse, but never did. Not paying for theft prevention and financial recovery provided them with an obscene political benefit under Obamacare—they could complain about improper payments that they enabled.

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Fraud, waste and abuse may flourish in the states if this part of Trumpcare becomes law. The states are even less well equipped than Washington to monitor for, prevent and prosecute misuse of taxpayer funds.

There is a real problem. Improper Medicaid payments totaled about $29 billion in fiscal 2015, nearly a tenth of Medicaid spending, the investigative arm of Congress, the Government Accountability Office (GAO), reported last year. But keep in mind “improper” is not the same as “fraud, waste and abuse” and that some of what is initially paid out improperly gets recovered.

Eliminating all improper payments in Medicaid is a political unicorn, but even if achieved it does not expand care, it does not add one person to the healthcare insurance rolls.

Now let’s look at the executive order Trump signed and what it means.

The Economics Don’t Work

“To the maximum extent permitted by law,” Trump ordered, federal agencies “shall exercise all authority and discretion available to them to waive, defer, grant exemptions from, or delay the implementation of any provision or requirement of the Act that would impose a fiscal burden on any State or a cost, fee, tax, penalty, or regulatory burden on individuals, families, healthcare providers, health insurers, patients, recipients of healthcare services, purchasers of health insurance, or makers of medical devices, products, or medications.”

And again “to the maximum extent permitted by law,” agencies “shall exercise all authority and discretion available to them to provide greater flexibility to States and cooperate with them in implementing healthcare programs.”

That language means the focus is not on providing healthcare to the last 10 percent of Americans without any insurance, but instead on unleashing economic forces that will make the Affordable Care Act’s very Republican and market-oriented basis fail. This is political chutzpah.

Obamacare was based on the principle that everyone will need healthcare over their life because of accidents, sickness and misadventure so everyone should pay into the system that finances care. That’s how insurance works—some people get benefits that exceed what they pay, but everyone is assured that when they have a need they will get healthcare.

Allowing some people to not pay creates what economists call a “free rider” problem, in which those with the means to pay into the system avoid doing so, but still sign up to take advantage of benefits when they need them.

Requiring universal insurance payments is classic market economics, albeit after changes Congress made at the behest of the health insurance industry—a superfluous and wasteful industry that adds to healthcare costs, a deadweight loss on the economy equal to five percentage points of the total U.S. economic output.

Conservative Republicans on Capitol Hill were all for the theory on which Obamacare was based until the first black president embraced it. They have never come up with a viable alternative and they reject the most efficient system, single payer with universal coverage and limits on out-of-pocket costs.

Without penalties to prevent free riders—and without rules and regulations designed to make paying into the system universal except for the poor—the Affordable Care Act cannot work. The Health Insurance Marketplaces, or exchanges, created to provide care for those who didn’t have coverage through employer-based group health insurance or Medicare, will collapse—not overnight, but soon.

It’s All in the Interpretation

A second and equally serious problem is that the Trump executive order is open to wide interpretation. For example, an existing Obamacare policy that saves lives, restores people so they can return to work or lengthens the quality of life can also be seen, when examined as an economic snapshot, as a cost or a regulatory burden to be shed immediately.

Notice there is no qualifying language in Trump’s order, nothing like “except in cases where loss of life, limb or a needless disability would result.”

As I read the executive order, a policy that would fully restore an injured person’s hands or spine so they can return to work and continue to be self-supporting and taxpaying may be jettisoned without considering the long-term consequences of limiting or denying care that results in the person becoming permanently disabled and thus eligible for Social Security disability benefits.

This is bad economics and abuse of taxpayers. More importantly, it is inhumane.

And It All Comes Down to Trust

The wide interpretations possible under the first Trump executive order illustrate how integrity matters. Indeed, integrity is all. Yet, when it comes to integrity and Donald Trump, we should all be suspicious with good reason—given not just his personal history of lying, cheating and stealing from workers, vendors, investors, but also his and his aides’ pronouncements after he assumed office.

The day after his inauguration, Trump declared, in a most inappropriate place, before the wall of stars honoring CIA operatives killed in the line of duty, that the crowd at his inauguration “looked like a million, a million and a half people.” It was not. Trump said journalists who provided fact-based estimates were the ones who told a lie, and all journalists would pay the price.

“So we caught them. And we caught them in a beauty [of a lie],” Trump said. “And I think they’re going to pay a big price.”

Soon afterwards Sean Spicer, the White House press secretary, declared in his first post-inauguration appearance in the White House briefing room that Trump’s swearing-in drew “the largest audience ever to witness an inauguration, period, both in person and around the globe.” That’s a lie: Reagan and Obama drew much bigger crowds and hard evidence proves it.

And that brings us back to “Meet the Press,” on which Conway said the next day, “There’s no way to quantify crowd numbers.” That’s also a lie. Techniques for measuring the size of crowds using photographs are well established and have been used for decades.

If you cannot trust Trump and his staff to stay within at least a gray zone of truth—meaning verifiable, fact-based statements—when it comes to the size of crowds, why would anyone believe anything the administration says about Trumpcare?

David Cay Johnston’s new book, The Making of Donald Trump, was published on August 2, 2016. His next one will be “The Prosperity Tax: A New Federal Tax Code for the 21st Century Economy.” Johnston is a Distinguished Visiting Lecturer at Syracuse University College of Law and Whitman School of Management, and also writes for The Daily Beast and Tax Notes.