Economic Implications of Obamacare Repeal and Replace

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This paper is an editorial review of the New York Times Op-ed article “Can Trump Take Healthcare Hostage?” written by Dr. Paul Krugman, winner of the 2008 Nobel Prize in economics. Krugman’s article is a scathing criticism of President Trump’s attempt to repeal Obamacare even though the repeal would economically harm his rural voting base. Specifically, we concur with Dr. Krugman; President Trump’s recent efforts to repeal Obamacare are unseemly mob-like tactics that harm the many in order to benefit the few.

Republican Politics-Trump Style
In his recent New York Times Op-ed article, “Can Trump Hold Healthcare Hostage?” Nobel Prize laureate Paul Krugman criticized President Trump’s bullying tactics directed to Democratic lawmakers. The bullying tactic at issue is Mr.Trump’s threat to stop payment of cost reduction subsidies unless Democrats cooperate, and help pass a GOP sponsored healthcare reform bill.. Specifically, Mr. Trump suggested that he would cut off federal funding for cost-sharing reductions that make Obamacare viable for insurers..

Ultimately, defunding cost reductions could potentially collapse the individual insurance market. (2017, p. 2). Republican scorched earth tactics repel Paul Krugman, so he responded with his own venom. In the article, he characterized Republicans as stupid, cruel liars who engage in mob-like extortion tactics. Moreover, Dr. Krugman regards Trump’s defunding threats as taking national healthcare policy hostage.

Krugman’s mob extortion comparison is completely accurate. Mr. Trump is essentially threatening to fit Americans with cement shoes if Democrats fail to meet his demands. In light of its disadvantage to Trump’s constituents, the Republican effort to repeal Obamacare appears to be a high-stakes agency problem. Defunding Obamacare cost reduction subsidies harms Trump voters more than any other group. This is because Americans living in rural areas have few insurance providers and treatment options.. Nevertheless, rural America is Trump’s most reliable voting constituency whose members need the affordable coverage ACA provides.

Former U.S. Secretary of Labor Robert Reich echoes Paul Krugman’s discomfort with the economic disadvantage caused by the repeal of ACA. Reich’s article, “The Real Reason Republicans want to repeal Obamacare”, sheds additional light on motives behind the repeal agenda. According to Reich, Obamacare repeal returns an average of $33,000 in tax cuts to America’s richest 1 percent, and $197,000 to the top 0.1 percent.. Ultra-affluent taxpayers earning more than $300 million annually would net an average annual tax cut of about $7 million per household. . Conversely, the repeal of Obamacare would increase the taxes of the people who put Trump in office, working-class families earning between $10,000 and $75,000. .

In the heat of his indignation about the harm to working-class families, Krugman forgot to give readers the information that really counts. Obamacare is not in financial trouble. There is simply no evidence that Obamacare is going to “explode”. Premiums predictably go up because healthcare costs increase, and private insurers pass those increases on to the insured. The truth is that working-class Americans are actually better off buying into the Democratic Party’s trade-off philosophy. President Obama built ACA on a classical Keynesian macroeconomic model.
Keynesian theory holds that the proper role of government is to stimulate a lagging business cycle with fiscal spending. This is the economic logic underlying healthcare insurance subsidies, the expansion of Medicaid and cost reduction payments to insurers. The outcome is increased economic activity that makes health insurance affordable for individuals. Curiously, rural voters reject progressive political candidates while admittedly benefitting from left leaning public policy.

Krugman laments the predicament of Trump voters, but fails to confront rural Americans with an inconvenient truth; they are co-creators of their predicament. Krugman’s article stopped short of wagging the finger at working-class rural voters who undermine their economic interests by supporting opponents of Obamacare.

The Rising Tide Lifts One Boat
Earlier in this discussion, we noted that the clear beneficiaries of Obamacare repeal are a small segment of society, the upper 1 percent of income earners. On the other hand, the sudden repeal of Obamacare threatens to destabilize the economy as a whole. The Economic Policy Institute estimates that 3 million jobs could be lost, especially in the healthcare sector.. Federal Reserve Chairman Janet Yellen testified before Congress that Obamacare improved the labor market. .

The long-term economic harm that Obamacare reformers rarely discuss is that repealing the ACA threatens entrepreneurship, new business creation and innovation. The ability to obtain affordable healthcare with pre-existing conditions diminishes job lock and promotes economic mobility. Obamacare stimulated a tidal wave of startup business because business founders have the security of health insurance for themselves and their families..Travis Kalanick, CEO of Uber, is one of the strongest proponents of Obamacare. He asserts that ACA gave individuals more flexibility in how they earn a living.

Conclusion
Disaffected rural working-class voters are mired in Republican identity politics. Unfortunately, Republican policies work against maximization of economic outcomes for the masses. Paul Ryan and his supporters prioritize the interests of upper class constituents who finance political campaigns. This tension between identity politics and economic self-interest sets the stage for President Trump’s elaborate game of The Emperor’s New Clothes. The net result is unmerited loyalty from economically fragile voters. Ultimately, the undue devotion of rural voters to Republican politics weakens working-class influence over the shape of public policy. The long-term consequence of repeal and replace, is the chilling effect it has on businesses that would have been created under Obamacare.

    References
  • Barro, J. (2017, February 13). Why Entrepreneurship suffers if Obamacare is repealed . Fortune.
  • Dworskin, E. (2017, February 20). Obamacare launches a new wave of startups. Now they’re bracing for what’s next. The Chicago Tribune. Retrieved from The Chicago Tribune.
  • Krugman, P. (2017, April 14). Can Trump Take Healthcare Hostage? Retrieved from The New York Times.
  • Reich, R. (2017, February 13). The Real Reason Republicans want to Repeal Obamacare. Retrieved from Alternet.
  • Ryan, B. (2017, February 15). Yellen says an Obamacare repeal could have a signficant impact on spending and the U.S. economy. Business Insider.
  • Sanger-Katz, M., & Abelson, R. (2017, April 14). Explaining the Health Payments Trump is Threatening to End. Retrieved from The New York Times.
  • The Commonwealth Fund. (2017, January 5). Repealing federal health reform:Economic and employment consequences for states. The Common Wealth Fund: Issue Briefs.