Getty Images Trump and Pelosi may have a deal to make after the midterms.
Over and over this fall, Americans have told pollsters that one of their biggest concerns is the cost of health care. As premiums and deductibles continue to rise, out-of-pocket family costs continue to skyrocket as well, and all of the personal economic benefit that might have accrued thanks to the booming economy or the Trump tax cuts vanishes as quickly and mysteriously as it appeared.
In the face of all of this, President Trump’s inability to repeal the Affordable Care Act, or Obamacare, stands out as one of the most glaring failures of his first two years in office. The president himself undoubtedly blames the late John McCain for this failure, but the fact of the matter is that the repeal attempt was half-hearted at best, offering no comprehensive roadmap for moving forward in a post-ACA environment.
As many conservatives predicted way back in 2009 and 2010, in the heat of the Obamacare debates, Americans quickly became accustomed to the ACA, and it now occupies the same position in political life as previously enacted entitlements. It is important to Americans. They approve of it by a solid majority. And they would resent its repeal now, its manifest flaws notwithstanding. All of which leaves President Trump and his fellow Republicans in a tough spot.
If we assume that the Democrats take control of the House next month – and that’s an assumption that can change, but still appears more valid than not at this point – then we can also assume that the new House leadership will be excited to get to work on allaying their voters’ concerns about the costs associated with health care. And President Trump – a populist more than a conservative – will all but certainly see this popular discontent with the health care status quo as both a threat and an opportunity.
The problem that Trump, Democrats, AND markets SPX, -0.33% will face is that any of the potential, politically viable solutions both to American families’ concerns and to the failures of the ACA will cost money, A LOT of money. And the bond markets are already in retreat, as federal spending continues to climb to unprecedented highs.
It is no coincidence that the start of the current uptick in interest rates began right about the time that the federal government announced (admitted?) that it added nearly $800 billion to the national debt last fiscal year. Federal spending is at ridiculous non-recessional highs; politicians of both parties seem content just to spend more and more; and it was inevitable that the bond vigilantes would eventually have to do what the politicians wouldn’t.
So, where does that leave us? Where does that leave President Trump and the presumably Democratic House in the next Congress? Well, for one thing, this means that the Democratic dream of universal care will be a non-starter, period. Trump announced his vociferous opposition to such plans in a USA Today op-ed last week. Moreover, the Democratic leadership – people like Nancy Pelosi and Chuck Schumer – have been around long enough to know that some fights are simply unwinnable and should therefore never be fought. Once such fight would be against Trump and the bond market TMUBMUSD10Y, +0.00% over a program that could, in theory, double the national debt. It’s. Not. Gonna. Happen.
A second possibility would be something along the lines of “Medicare X,” a proposal introduced last year by Democratic Senators Michael Bennet of Colorado and Tim Kaine of Virginia. Medicare X would reincarnate the “public option” rejected during the ACA debate, allowing people to buy into Medicare and for it to compete for customers with private health plans.
A Republican Senate would (wisely, I think) reject such a plan out-of-hand. But Donald Trump – a populist who has already said that his re-election is the “real” election – might not be quite so eager to do so. As I’ve argued previously in these pages, Trump just might be inclined to exercise his executive authority to “triangulate” his way to reelection. Additionally, his public criticism last week was pointedly directed at plans that would “eliminate” private health insurance, which a Medicare X-style plan might do in practice, but would not do in principle.
What could Trump accomplish without the consent of Congress? It’s hard to say anything for sure. We can guess about the limits on his power, but since he has already “reformed” health care to some extent through executive action and since executive authority seems to have grown almost weekly over the course of the last three presidencies, there are no guaranteed limits at all.
In the end, I expect that President Trump will do whatever he can get away with. The real question will be who will be the judge of that, Congress, or the bond market?
Steve Soukup is the publisher and managing partner of The Political Forum, an independent research provider that delivers research and consulting services to the institutional investment community. He focuses on economic, social, political, and geopolitical events that are likely to have an impact on the financial markets in the United States and abroad.
