President Donald Trump is demonstrating one of the most effective ways for a buyer to get a seller to cut prices: He's getting up and preparing to walk out of the store. It's what works when you go shopping for a new car, and it's our best chance to see health-insurance prices fall, too.
That's essentially what President Trump is doing by threatening to cut off the federal subsidies, or cost-sharing reduction payments, that Washington sends to lower income Americans to help them pay their Obamacare premiums. The move predictably set off plenty of hysteria and political hyperbole from Democrats, with Senate Minority Leader Chuck Schumer and House Minority Leader Nancy Pelosi already crying foul about how this move threatens health coverage for millions of Americans.
But instead of playing to the cameras, if Schumer and Pelosi really want to help protect and even increase American access to health insurance and actual care, they should join with the White House in staring down the health insurers and play some hard ball. Because the reality is that as of now, the insurers have all the leverage and all the pricing power. That has to change.
Don't think so? Just look more closely at what's already happening even with Uncle Sam shelling out all that subsidy money. The fact is that insurers like Aetna, UnitedHealthcare, Cigna, and Humana have already been scaling back the number of Obamacare exchanges they're participating in anyway. Anthem is thinking of doing the same thing. And in places where the insurance companies are still sticking around, premiums just went up an average of 25 percent this year, according to the Department of Health and Human Services. Anyone who thinks President Trump is the current or future reason why so many Americans may lose health insurance coverage hasn't been paying enough attention. Subsidies or no subsidies, coverage is shrinking rapidly anyway.
And let's look at what kind of "coverage" Obamacare coverage really provides anyway. Even if you get subsidies to pay for Obamacare premiums, high deductibles associated with many of the Obamacare plans discourage people from going to the doctor and getting health care in the first place. It's a simple and fair question that needs to be asked over and over again: If you have a health plan but it's too expensive to use, what good is that health coverage in the first place?
When Pelosi, former Senate Majority Leader Harry Reid, and the Obama White House were formulating the Affordable Care Act in 2009 and 2010, the Democrats worked hard to make sure the private insurers stayed at the table and cooperated with the plan. So they promised them a huge influx of new customers via the individual coverage mandate to offset the costs of being forced to cover those chronically ill and/or elderly Americans who account for most of the nation's health care costs. The reasoning was that the insurers would make profits with that volume of new customers and thus, they'd stay happy.
As it turned out, they over-promised. The needed new volume never materialized, with millions of younger and healthier Americans deciding to pay smaller penalties rather than sign on for those plans with bigger premium costs and even bigger deductibles. They simply didn't want to join a system that was making them pay more for less just to help subsidize others. Now the insurance companies have scaled back. They are raising prices and participating in the exchanges where they can still make acceptable profits. President Obama and the Democrats should have given the American people more of a stick to prevent insurers from doing this.
And that brings us back to President Trump's tactics. Instead of promising the insurers that he'll continue the government-backed cash flow no matter what, or even working to increase it, he's turning the tables and threatening to take it away entirely. Up until now, the Democrats and a lot of Republicans have been acting like that couple that walks into the car dealership looking like they need to buy now. And prices have been rising and choice has been shrinking accordingly.
The Trump team says it's making this subsidy cutoff threat in order to get the Democrats to come to the bargaining table on the new health-care bill. But it's just as much about letting the insurance companies know they won't be able to game the Obamacare exchange system, like they are now, forever. It's not the Democrats who have the hardest choice here, it's the insurance companies. Essentially, they have to decide whether they want to keep those millions of newer customers they have because of Obamacare, or risk losing them all even if they were promised more years ago. They must be making some money in the exchanges they're not pulling out of; how much do they want to gamble on losing that? You get the point.
Finally, the people who actually set the prices for health insurance are seeing some real pushback from the buyers. And thus, the administration's threat shouldn't be seen as just another partisan battle in Washington. It's really a sudden shift away from the crony capitalism both parties have been playing with the insurance companies — that's a big reason why our health costs are out of control in the first place. The Democrats need to be taught this lesson and get on board, because otherwise the insurers will just play one side against the other and likely keep their pricing power. But if the Trump-bashing Democrats like Schumer and Pelosi can just figure this out and join with President Trump, they might actually bend the health insurance cost curve for real.
Commentary by Jake Novak, CNBC.com senior columnist. Follow him on Twitter @jakejakeny.
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