Trump's healthcare moves may help the tax deal

BY DEB SHAW | 

  • Trump's executive order and funding cuts to accelerate demise of Obamacare
  • Providing an alternative to Obamacare helps future healthcare bill and appeases Senator Rand Paul
  • Market reactions fairly limited, with Trump making progress on support for his tax bill

On Thursday, Trump signed an executive order allowing small businesses and groups to band together and buy health insurance through so-called association health plans. It also lifts limits on short-term health plans, which are currently limited to 90 days. Trump will also allow insurance companies to sell the new plans across state lines, creating a more competitive marketplace for health insurance. Both plans will not be subject to stringent Obamacare rules (such as minimum benefits), thus allowing an alternative to the current plans which are rapidly increasing in cost.

 

Obamacare set to unravel sooner rather than later

Following the executive order, the White House has also announced its plans to end direct subsidies to insurers. Trump recently took to Twitter and commented: “The Democrats ObamaCare is imploding. Massive subsidy payments to their pet insurance companies has stopped.” By eliminating an estimated $7b in annual subsidies to the healthcare industry, the Obamacare marketplace is likely to suffer. According to TheHill.com, the Congressional Budget Office has estimated that 1m people would lose coverage while plan costs would increase by 20% without the subsidies. The subsidies are primarily geared towards helping low income Americans afford Obamacare.

While mandatory healthcare costs continue to spiral, many Americans still believe there is hope to fix Obamacare in order to provide lower cost healthcare to a broader segment of the population. This belief worked against Trump’s first two healthcare bills, as Republican senators were unable to vote against the wishes of their constituents (who were afraid of losing Obamacare). By providing an alternative to Obamacare while cutting its subsidies, Trump is accelerating the demise of Obamacare – which is close to collapsing in many parts of the country. Instead, Trump is set to pave the way to a future healthcare bill that opens the market to increased competition and gives consumers more choice.

 

Trump appeases the right, with tax reform in sight

Allowing healthcare plans to be sold nationally while cutting subsidies for the industry has been one of Senator Rand Paul’s key priorities. According to USA Today, Paul said that he been collaborating with Trump regarding the executive order over the last 9 months. “Today’s a big day, Trump is doing what I believe is the biggest free-market reform of health care in a generation,” Paul said. “I’m very glad to be a part of this and I really want to commend the president for having the boldness and the leadership and the foresight to get this done.” Despite tensions between the president and Paul in the past (particularly following the failure of the recent Graham-Cassidy bill), Trump acknowledged the senator’s help. “When you got Rand Paul on your side, it has to be positive," Trump said.

By supporting Paul on healthcare, Trump is making progress on bringing more Republican senators to his side. We earlier wrote that the White House can only afford to lose 2 Republican senators if all Democrats and independents vote against the future tax bill. While there are allegedly four Republican senators opposed to the bill (including Paul), yesterday’s executive order has probably won his support.

 

Reactions in the markets look muted

While the dollar has been up for the past two days, markets remain wary of placing bets on the ‘Trump trade’. Inflation expectations remain subdued as Trump has disappointed hopes for reform and fiscal spending since last summer. Without more clear indications that tax reforms can get through Congress, reactions in the dollar are likely to be limited. For now, our medium-term outlook on the dollar remains neutral.   

Topics: US dollar
Tags: Trump