Inside the GOP’s plans to raid the Treasury to enrich private companies

There’s a common theme across our new government’s major proposals.

CREDIT: AP Photo/Alex Brandon
CREDIT: AP Photo/Alex Brandon

Let’s say that your town needs a new road. Broadly speaking, there are two ways to build that road.

The government could spend its own funds to build the road, in which case the road is public property and any revenues (such as tolls) that arise from the road will be used for public purposes. Or a private company could raise capital to build the road, in which case the company bears the risk of failure but also will enjoy any profits that come from a successful project.

If the government bears the risk, the public enjoys the rewards. If private investors bear the risk, they enjoy the rewards.

President-elect Donald Trump, however, wants to break this link between risk and reward — that is, he wants to make taxpayers pay for roads that, ultimately, will be owned by private companies. And he’s not alone.


The Republican Medicare plan jacks up the cost of caring for seniors, while enriching hospitals and insurance companies in the process. The Republican “replacement” for Obamacare, to the extent that such a thing even exists, helps insurance companies maximize their profits while taking away their obligation to cover people with expensive conditions. The Republican Medicaid plan could allow states to shunt Medicaid dollars to private plans that provide less coverage at a higher cost.

It’s a great time to be alive — if you happen to run a company that’s positioned to cash in on this bonanza. Sure, it also means less health care for the most vulnerable Americans, less spending for the public good, and less public control over infrastructure such as roads and bridges once the Trump administration is over. But if you want to get rich providing inferior services for a government subsidy, now is the time to cash in!

The infrastructure bill

In the face of a broader agenda largely focused on appointing white nationalists to key jobs, conducting sweeping purges of immigrant communities, and potentially requiring people to register if they belong to a religion Trump disapproves of, the president-elect’s proposal for an infrastructure bill initially seemed like a lonely bright light for Democrats. Trump talked about a $1 trillion investment in infrastructure over the next ten years. It seemed like the sort of thing President Obama might have proposed if he’d had a Congress that was willing to work with him.

But the details of Trump’s bill suggests that it has less to do with putting Americans to work than it does with funneling money to companies that are already working on infrastructural projects. As Paul Krugman explains, the bill offers private investors “a huge tax credit that gives them back 82 percent of the equity they put in” to certain projects. Thus, the government will pay for all but 18 percent of the costs of these projects, but the private investors will wind up owning what the public has paid for.


There also aren’t safeguards to ensure that this money goes to construction that wouldn’t have happened anyway had the bill never passed. Nor is it likely to fund many of the most-needed projects. As Ron Klain writes, “desperately needed infrastructure projects that are not attractive to private investors — municipal water-system overhauls, repairs of existing roads, replacement of bridges that do not charge tolls — get no help from Trump’s plan.” Why would a private company agree to conduct a major project (and pay for 18 percent of it), if they have no way to profit from it?

It’s a remarkably inefficient proposal. The government will wind up paying for many projects that would have been built anyway. The public will get saddled with tolls and other fees to travel on privately owned roads or to use other privately owned infrastructure. And the companies that build these projects will get rich.

Medicare vouchers

The Republican Medicare plan, in a nutshell, is a plan to charge seniors a lot more for inferior coverage. Republicans want to repeal traditional Medicare, the single-payer system that covers most seniors, and replace it with a voucher that will cover some of the cost of a private plan. Thus, its core proposal will shift money away from a successful public health plan and towards private insurers.

Because private insurers are less efficient than government-run Medicare, however, this will drive up the overall cost of insuring an individual senior by as much as 40 percent. Though Speaker Paul Ryan (R-WI), the architect of the this Medicare vouchers proposal, has recently been coy about the details of his plan, the Center on Budget and Policy Priorities calculated how much costs would increase under the 2011 version of Ryan’s plan, and it’s not pretty:

This significant spike in costs occurs, in part, because private insurers have higher administrative costs than a public plan. It also occurs because Ryan’s voucher program strips away Medicare’s power to bargain with health providers for more affordable care.


When a patient seeks care from a hospital or other health provider, the provider frequently tries to overcharge the patient — and the patient, for various reasons originally laid out by the Nobel Prize winning economist Kenneth Arrow, is hardly in a position to bargain with their health provider.

Insurers, however, act as a kind of collective bargaining agent for patients. Large insurers that insure a significant number of a hospital’s patients can typically bargain for much lower prices, because they can use the threat of no longer allowing any of these patients to receive covered care at that hospital to bring the provider to the bargaining table. Patients who are in smaller insurance networks, meanwhile, often get the shaft because their insurer lacks the bargaining power to bring down prices very much.

Medicare pays more health bills than any private insurer, which means that it has enormous bargaining power and is typically able to demand much lower prices than a private company. By transforming Medicare into a voucher program, however, Republicans will split this large, effective bargaining unit into multiple smaller insurance plans. That means higher prices for seniors and more money for hospitals.

The sham “replacement”

There’s a running joke among health reporters about how the Republican plan to replace Obamacare is always over the next hill. Saying that they will replace the Affordable Care Act, which has dramatically reduced the uninsurance rate, polls better than simply promising to tear away the new law and leave nothing in the resulting void. But year after year, Republicans have promised a replacement plan but failed to deliver anything more than vague ideas.

Beginning in January, however, the GOP will be the dog that caught the car. They will need to either admit that the Affordable Care Act is so tightly woven into our health system that it cannot be ripped out. Or they will bear the anger of 20 million people who lose their health insurance overnight. Or they will have to come up with someway to reform the law without gutting so many people’s health insurance.

Though the Republican Party’s proposals remain vague, initial signs are not good for people who currently depend on Obamacare for coverage. The primary mechanism Speaker Ryan, who, again, is the GOP’s thought leader on health policy, plans to use to cover people with preexisting conditions is high-risk pools — another idea that effectively shifts costs to government while maximizing corporate profits.

Health insurance works by pooling together many people’s insurance premiums. People who remain healthy pay more premiums into the pool then they take out. People who get sick draw upon the pool to cover their medical bills, potentially taking out more money than they put it. Before the ACA, insurers in the individual market were allowed to exclude people with preexisting health conditions, and they frequently did so because these individuals are especially likely to cost more to insure than they pay in premiums.

Obamacare solved this problem with three interlocking reforms. Insurers are no longer allowed to exclude people with preexisting conditions. The so-called “individual mandate” ensures that people buy insurance before they get sick — thereby preventing a situation where the only people in an insurance pool are people who take out more than they pay in. And subsidies help people pay for this insurance coverage.

High-risk pools, by contrast, are a special insurance program for people with expensive conditions. Ryan has proposed replacing Obamacare’s web of regulations and subsidies with about $25 billion in spending on high-risk pools, enough to insure maybe 3 million of the 20 million people who will lose insurance if the ACA is repealed.

And, in keeping with the theme of so many of the GOP’s proposals, high-risk pools are also a great way to jack up corporate profits:

At best, high risk pools are a way to maximize the insurance industry’s profits while shifting the costs of our health care system onto the taxpayers. If the government takes on the burden of insuring the most expensive individuals — and only the most expensive individuals — then that’s a bonanza for the insurance companies because they will be left with a pool of less expensive (and more profitable) consumers. Meanwhile, the costs of providing care for the most expensive health care consumers will fall upon whatever new government program President Trump creates to manage the high risk pools.

It should be noted that this is the best cast scenario. Several states attempted to use high-risk pools as a solution for people with preexisting conditions, but they proved too expensive to maintain and the state did not fund them adequately. As a report explained after Sen. John McCain (R-AZ) proposed high risk pools during his 2008 presidential bid, these pools “have not been a viable alternative for the medically uninsured because of high premiums… and inadequate funding to subsidize the full cost of providing insurance to a high-cost population.”

In light of Paul Ryan’s proposal to spend only a fraction of what we would need to spend to provide insurance to all of the people who will lose coverage if Obamacare is repealed, it is likely that states’ experience will be repeated at the federal level.

The raid on Medicaid

In fairness, corporate giveaways are hardly the most notable aspect of the Republican Medicaid plan. Ryan’s proposals would cut Medicaid by as much as 50 percent over the course of ten years — and then they would keep going. The result would be something just shy of a wholesale abandonment of America’s commitment to providing health care to the least fortunate.

Tucked within Ryan’s plan, however, is a neat way that private insurers could potentially cash in while some shell of Medicaid still remains. The plan gives states a choice between two different ways of funding Medicaid — one of which declines in value faster and the other of which, known as “block grants,” gives states broader latitude to ignore rules intended to protect Medicaid beneficiaries.

Among other things, this could make it easier for states to shift beneficiaries onto private insurance plans. That would be bad news for low-income Americans, as private plans typically pay more for care for the reasons explained above. It also could lead to high deductibles, large co-pays, and restrictions on the kinds of coverage offered under these private plans.

But it would be great news for the insurance industry.