Trumpcare Could Be a Disaster for America's Healthcare System — Here's Why

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Are the Affordable Care Act’s days numbered? According to the campaign talk of President-elect Donald Trump, it’s just a matter of time before Obamacare, as the ACA is more commonly known, is repealed and replaced.

Obamacare’s issues in a nutshell

The reason Obamacare has become such a target in recent months is the rampant premium inflation associated with the program. Obamacare was designed to be transparent and encourage competition among insurers, but it’s suffered a couple of possibly fatal flaws along the way.

For instance, the Shared Responsibility Payment, or SRP, really isn’t working as planned. The SRP is the penalty consumers pay come tax time for not purchasing health insurance as required by Obamacare’s individual mandate. In 2016, the SRP is the greater of $695 or 2.5% of your modified adjusted gross income (MAGI). The Kaiser Family Foundation (KFF) has estimated that the average SRP in 2016 should be $969. While $969 is far from pocket change, it’s also a far cry from the average cost of a bronze level plan. In 2015, per KFF, the average national bronze plan cost nearly $2,500 a year, and it’s gone up notably since then. As long as the SRP and a low-cost bronze plan are miles apart in terms of cost, then critically needed younger and healthier adults who don’t visit the doctor often — and are often profitable for insurers — aren’t likely to enroll.

The risk corridor has also been a disappointing failure for Obamacare. The risk corridor is a type of risk-pooling fund that took the excess profits of some ACA insurers and redistributed them to money-losing insurers that had priced their premiums too low. The problem is that not enough insurers were profitable, leading to just $362 million being paid out of the $2.87 billion requested. About three-quarters of Obamacare’s approved low-cost healthcare cooperatives have shuttered their doors over the past year, and a number of national insurers have greatly reduced their coverage for the upcoming year.

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The result of these two failures is rapidly rising premium inflation. In the upcoming year, the second-lowest cost silver plan (known more commonly as the “benchmark plan”) is slated to rise 25% nationally, which is a major dent to the affordability of Obamacare.

Image source: Evan Guest via Flickr.

Trump’s seven-point solution

The solution for President-elect Trump is his seven-point healthcare plan. Trump’s healthcare plan has been covered in greater detail previously, but here are some of the general ideas of what he would like to see happen.

  1. Repeal Obamacare
  2. Allow consumers to purchase health insurance across state lines
  3. Full premium tax deductions
  4. Promote Health Savings Accounts
  5. Require insurers to be transparent on pricing
  6. Block grant Medicaid to the states
  7. Remove barriers to entry for overseas drug providers

In many respects, Trump’s healthcare proposal offers some intriguing ideas. For example, block-granting Medicaid to the states should help save money and allow Medicaid dollars to stretch farther. The federal government is never going to have as good a bead on where Medicaid dollars should be spent as the states and counties do, so block-granting could make a lot of sense.

Furthermore, giving Americans the opportunity to purchase health insurance across state lines could be a boon for rural Americans stuck paying exceptionally high premiums. Consumers who live in sparsely populated areas of the country with minimal medical care or specialty care access are a liability for health insurers, so they tend to charge these consumers higher premiums. Trump’s healthcare proposal could help lower premium costs for rural Americans.

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Trump’s healthcare plan could be a disaster for America’s healthcare system

However, Trump’s healthcare plan could also be devastating to America’s healthcare system. Here’s how it could set the healthcare system back.

Perhaps the biggest issue with Trumpcare is that there’s nothing stated in his plan about how he’d deal with the roughly 21 million people currently receiving federal assistance via Obamacare’s Advanced Premium Tax Credit, cost-sharing reductions, or Medicaid expansion. It’s possible that these estimated 21 million people could lose their health coverage if Trump’s healthcare plan becomes law. That’s terrible news for insurers like Anthem (NYSE: ANTM), which specifically angled their business to court Medicaid expansion enrollees, and hospitals like HCA Holdings (NYSE: HCA), which have benefited from setting aside less money for doubtful revenue collection thanks to lower uninsured rates. If uninsured rates rise, uncollected revenue is likely to rise for hospitals, too.

Another issue with Trumpcare is that it could mean a considerably larger onus of costs passed on to consumers who receive their health insurance through the workplace. Trumpcare could create one large healthcare domino effect. If Obamacare is repealed and millions of Americans lose their health insurance, hospitals could be on the line for covering the medical care of uninsured folks should they need it. In response, hospitals could charge insurers more to cover their rising doubtful account provisions. Insurers could respond by charging employers more to counteract the higher expenses they face from hospitals. And finally, employers could pass along these expenses to their employees via higher deductible plans that require the employees to pay more out of pocket.

Image source: Francisco Osorio via Flickr.

Trumpcare also tends to cater to wealthier individuals with its full premium tax deductions. Because the rich can afford more all-encompassing health plans, they receive a seemingly larger tax break than lower-income consumers who may only be able to afford plans with minimal coverage. What’s more, even full tax deductions may not be enough incentive for lower-income Americans to enroll.

Trump’s proposal to allow Americans to purchase prescription drugs overseas also does little to address the underlying causes of why prescription drug prices are soaring, such as long patent exclusivity periods. While it’s possible that consumers could find better deals in Canada, massive reforms would be needed at the Food and Drug Administration for this plan to make sense.

Ultimately, Trumpcare could spike the uninsured rate, have little effect on drug price inflation, and lead to costlier insurance due to the aforementioned healthcare domino effect.

Understandably, we should also take into account that nothing is set in stone at this point. Trump still need to get his proposals passed through Congress before they’d become law, and it’s possible that a Republican-led Congress may not see eye-to-eye with Trump. Nonetheless, if Trumpcare is passed in its current form, it could be a disaster for America’s healthcare system.

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Yes, Trumpcare Could Be Successful — Here's How

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With the elections now in the rearview mirror, America prepares to appoint career businessman Donald Trump as the 45th president of the United States in January. With Trump’s presidency, and a Republican-led Congress, comes the potential for big changes on Capitol Hill. One of those major changes involves repealing and replacing the Affordable Care Act, which is more commonly known as Obamacare.

Obamacare’s mixed results

On one hand, Obamacare has done a good job of lowering the uninsured rate. According to the Centers for Disease Control and Prevention, the uninsured rate at the halfway point of 2016 was just 8.9%, which compares very favorably with the 16% uninsured rate in the quarter preceding Obamacare’s implementation.

Obamacare has also arguably made the health insurance buying process far more transparent than it’s ever been. Consumers can compare plans online, and they have more information at their fingertips than ever before.

However, Obamacare has had its drawbacks. Insurers have often criticized that the program isn’t sustainable, with UnitedHealth Group (NYSE: UNH) and other national insurers regularly losing money on their ACA plans despite premium increases. For 2017, UnitedHealth Group pulled out of 31 of the 34 states it had been offering coverage in, while Aetna (NYSE: AET) and Humana (NYSE: HUM) reduced their county-based coverage by nearly 70% and 90%, respectively. We also witnessed three-quarters of the approved healthcare cooperatives, which offer low-cost insurance options, go out of business because of unsustainable losses. The result for the consumer is fewer choices and higher premiums.

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In fact, the price for a benchmark silver plan (the average price of the second-lowest cost silver plan) is headed higher by 25% across the U.S. in 2017. Though consumers receiving subsidies are mostly shielded from these premium increases, middle-class families are not.

Image source: Getty Images.

Trump’s seven-point healthcare plan

Trump has gone on record as offering a seven-point plan to repeal and replace Obamacare, which has been covered in greater detail previously. The main tenets of his healthcare plan are as follows:

  1. Repeal Obamacare
  2. Allow health insurance to be purchased across state lines
  3. Offer full premium tax deductions
  4. Emphasize Health Savings Accounts
  5. Require price transparency from health insurers
  6. Block grant Medicaid to the states
  7. Remove barriers to entry for overseas drug providers

As you might have rightly imagined, Trump’s plan has taken a lot of criticism. For instance, the tax deduction benefits favor those who can afford more encompassing and costly health insurance. His plan also doesn’t address what might happen to the millions of Americans currently receiving financial assistance with the Advanced Premium Tax Credit, cost-sharing reductions, or even Medicaid through the Medicaid expansion in 31 states. It’s possible that millions of Americans who may have never had access to medical care prior to Obamacare’s implementation could once again be on the outside looking in if Trumpcare becomes law.

But, on the other end of the spectrum, there are a number of ways Trumpcare could improve the U.S. healthcare landscape. Let’s take a brief look at how Trumpcare could be a positive for healthcare in America.

Image source: Getty Images.

Here’s how Trumpcare could be a positive for healthcare in America

To begin with, Trumpcare aims to break state barriers and allows consumers to potentially purchase health plans from outside of their state. This would be particularly beneficial for Americans who live in rural and less-populated parts of the country where access to medical care may be sparse and premiums paid for health insurance are often high. If consumers were allowed to shop from a considerably larger pool of plans, the thinking is that the competition created for these tens of millions of customers could help put a lid on premium inflation.

Speaking of inflation, another component of Trumpcare — removing barriers to entry for overseas drug providers — could reduce the rapidly rising price of prescription drugs. It’s no secret that pharmaceutical companies rely on the U.S. market and its inherent drug-pricing advantages to reap hefty profits so they can finance their ventures into far less profitable, or even unprofitable, emerging markets. Trump would advocate allowing consumers to purchase their medications from overseas drug manufacturers, such as those in Canada, in order to save money.

Thirdly, Trumpcare might be able to cut down on the “waste” in Washington. Block-granting Medicaid to the states themselves essentially means allowing each state to decide how federal funds would get spent. The hypothesis here is that the federal government is never going to have as good an understanding of where federal funds for Medicaid should be spent at the state level as do the individual states and counties themselves. Block-granting Medicaid could reduce fiscal waste for the program, allowing it to work for more low-income individuals and families.

Image source: Getty Images.

Another aspect of Trumpcare that could be a positive is that it puts more disposable income back into the pockets of insured Americans. Allowing for a full premium tax deduction could encourage consumers to enroll, and it’ll help reduce their tax liability regardless of whether they’re buying a minimal coverage plan or an encompassing plan.

Finally, repealing Obamacare also means getting rid of the medical device excise tax, which is a 2.3% tax taken from revenue, not from net profits. Though the medical device excise tax was suspended nearly a year ago for a two-year period, and it was never designed to be a big revenue generator for Obamacare, it has been pinpointed as a barrier to innovation in the device sector. Repealing Obamacare means the end of the medical device excise tax, which could spur device innovation within the United States.

You should understand that Trumpcare is by no means perfect as it stands now, and it may require a compromise with Congress before it’s considered for implementation. But, even given its criticisms, Trumpcare may have a number of positives to bring to America’s healthcare landscape.

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Imagining Trumpcare

President-elect Donald Trump says the top of his agenda will be repealing the Affordable Care Act, better known as Obamacare. His campaign manager even suggested recently that he might call a special session of Congress to do it. He didn’t get into the weeds during the campaign about what he has in mind to replace it with, but he said he believes “every American deserves access to high-quality, affordable health care.” Since his victory, he has indicated that there are some parts of the signature law of his predecessor that he would like to keep — specifically, the provision that allows children to stay on their parents’ insurance policies until they are 26 and one that prevents insurers from rejecting coverage for people with pre-existing conditions. One reform he has specifically mentioned is legislation to allow insurance companies to sell policies across state lines.

So what might such a system look like?

Republicans have been agitating for an interstate health insurance market for years, saying it would increase competition and allow consumers to pick plans without mandated benefits they don’t want or need. Democrats (and many health policy experts) warn that such a reform would lead to a “race to the bottom” in which insurers shop for the most lenient regulators and attract young, healthy people with bare-bones plans that offer little protection. In turn, those left in legacy plans would be older and sicker, leading to spiraling costs.

But the bigger issue is this: Insurance companies may not even want to do it. Federal law doesn’t actually prohibit interstate sales; it’s up to individual states, and a handful have tried it. But few if any insurance companies have actually taken advantage of the opportunity. The issue is not just regulatory but whether an insurer can provide the networks of hospitals and doctors necessary to actually deliver care. A Marylander might be able to buy a cheap insurance policy from Texas, but it doesn’t help if all the doctors here are out-of-network.

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How California can survive Trumpcare

No one knows exactly what Donald Trump’s pledge to “repeal and replace” the Affordable Care Act means. The hints, however, are troubling. No state has embraced the ACA — Obamacare — more enthusiastically and successfully than California. And no state has more to lose with Trumpcare. 

California’s programs won’t be gone overnight. Despite campaign promises to the contrary, it is virtually impossible to repeal Obamacare on day one of the Trump administration. The Senate filibuster rule, which requires 60 votes to move legislation forward, provides Democrats with a mechanism to block a complete repeal effort. And there would be an enormous backlash against an immediate, abrupt repeal. More than 20 million Americans are newly insured under Obamacare, and many congressional leaders, including House Speaker Paul D. Ryan, understand the very real political costs of throwing them under the bus. So Obamacare is likely to continue through the end of 2017, and perhaps 2018.

The question is, what comes next? The Trump campaign was short on details. Suggestions included promoting health savings accounts linked to high-deductible health plans; allowing insurance to be sold across state lines in an effort to increase competition and thus affordability; and allowing everyone to deduct health insurance premiums from their taxes.

Since the election, Trump has emphasized maintaining at least two popular features of Obamacare — allowing children to stay on their parents’ policies up to age 26, and requiring insurers to offer insurance to those with pre-existing conditions without higher premiums. (There’s a caveat — premiums will go up if you aren’t continuously covered.)

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Viewpoints: How Much Of Obamacare Will Remain In Trumpcare?

A selection of opinions and editorials from around the country.

The Washington Post:
Donald Trump Is About To Face A Rude Awakening Over Obamacare

After reiterating his promise to repeal and replace the Affordable Care Act, President-elect Donald Trump has indicated that he may keep two of the law’s most popular provisions. One is straightforward enough — children up to age 26 being allowed to stay on their parents’ plan. The other — preventing insurance companies from denying coverage because of preexisting conditions — offers a perfect illustration of why Trump and most of the other Republicans critics of Obamacare don’t understand the health insurance market. (Steven Pearlstein, 11/12)

Los Angeles Times:
Trump Embraces The Cool Parts Of Obamacare — But Not The Part That Makes It Work

When it comes to healthcare, President-elect Donald Trump made it clear Friday that he’s all in favor of dessert but doesn’t want any Brussels sprouts. He said in an interview with the Wall Street Journal that he’s not against all aspects of Obamacare. He’s in favor of the ban on insurers denying coverage to people with preexisting conditions, and he supports keeping kids on family policies until they turn 26. (David Lazarus, 11/11)

After U.S. Election, Retirement Security Heads For A Crash

Obamacare repeal … might not seem like a retirement issue at first glance. But if Trump and Republican lawmakers make good on their promises to repeal the Affordable Care Act, millions of older Americans who fall short of Medicare’s eligibility age (65) likely will lose their health insurance. Hate Obamacare if you like, but it has hugely benefited millions of older low- and middle-income households. The Commonwealth Fund estimates that the percentage of uninsured Americans aged 50-64 fell to 9.1 percent this year, compared with 14 percent in 2013. That translates to 3.1 million previously uninsured people who now have health insurance. (Mark Miller, 11/11)

The Wall Street Journal:
The GOP’s ObamaCare Strategy Pays Off

When the new Congress and President-elect Trump take office in January, Republicans will have a real chance to repeal President Obama’s Affordable Care Act. If they succeed, it will be the result of their carefully executed strategy to repeal the law and repeated congressional votes to do so. This approach was the subject of much derision from Democrats, but sticking to it has now put the Republicans in a position where they can reach their goal. (Tevi Troy and Lanhee J. Chen, 11/13)

The Health Care Blog:
A Vote For Trumpcare

Mr. Trump won over the white working-class individuals in small rural areas. Sluggish economic recovery in these areas played a significant role in his unanticipated victory. It is these disenchanted individuals watching the American Dream slip through their fingers who voted for Mr. Trump. Those same people want the freedom to buy the insurance they need, and not what the bloated government shoves down their throats. 25% of the population lives in rural areas yet only 10% of the physicians practice in there. Physicians are leaving the system in droves, closing their patient panels, and not keeping up with demand, thereby threatening patient access in these isolated locales. (Niran Al-Agba, 11/12)

The New York Times:
No, Birth Control Coverage Won’t Go Away

Hours after Tuesday’s election results were final, tweets, Facebook messages and articles began bouncing around the internet urging women to go seek birth control right away. “Get an IUD Before It’s Too Late,” advised a Daily Beast headline. “Here’s Why Everyone Is Saying to Get an IUD Today,” explained a popular New York Magazine piece. “My phone was ringing off the hook,” said Andrea Miller, the president of the National Institute for Reproductive Health, who said her organization heard from some anxious women, concerned that their birth control options might become quickly and severely limited. (Margot Sanger-Katz, 11/11)

Detroit Free Press:
In Search Of IUDs: Life In Trump’s America

On a normal day, Planned Parenthood of Mid and South Michigan fields nine calls from women interested in long-acting birth control like the intrauterine device. Wednesday — the day after the presidential election — Planned Parenthood’s call center booked 37 appointments for women seeking IUDs. By noon on Friday, Planned Parenthood centers across the state had booked 134 appointments for long-acting contraceptives, along with appointments for screenings, checkups and other routine care, about a hundred additional calls each day, in total. (Nancy Kaffer, 11/12)

This is part of the KHN Morning Briefing, a summary of health policy coverage from major news organizations. Sign up for an email subscription.

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After Obamacare, How Will TrumpCare Treat Insurers?

Now that the presidency of Donald Trump is certain, Obamacare is shrouded in uncertainty. In any case, Trump’s intention of repealing this law was clear from the very beginning. The Healthcare Reform Act, which was formed in 2010 by Barack Obama faced constant friction since its inception. This time, it is being opposed by the President-elect himself.

The sense of urgency to replace the law was evident in Trump’s comment in the final week of his campaign. He had declared, “We will do it, and we will do it very, very quickly. It is a catastrophe.”

Trump proposed to repeal and replace Obamacare with Health Savings Accounts (HSAs) and a series of offers encouraging free-market competition. These include encouraging the sale of insurance policies across state lines, and making individual health insurance premium payments fully tax deductible.

Trump is however, favoring one key mandate of the law which prohibits insurers from refusing coverage to people with preexisting medical problems or from over charging them. Though some of the changes proposed by Trump will encourage healthy competition among health insurers, the proposal to cover patients with a preexisting condition will be a major hurdle.

Insurers have already said that covering preexisting diseases turns out costly for them unless healthy patients enroll en masse to offset the cost of insuring the sick population, which can only be achieved by an individual mandate, a feature of Healthcare Reform the Trump wants to undo.

Reaction of Insurers

Stocks of the insurers had a mixed reaction to the outcome. While insurer Aetna Inc. (NYSE:) and Humana Inc. (NYSE:) gained on hopes that the new governance will help them through the merger, other players such as Cigna Corp. (NYSE:) UnitedHealth Group Inc. (NYSE:) carrying a Zacks Rank # 2 (Buy), Centene Corp. (NYSE:) and Molina Healthcare Inc. (NYSE:) suffered. You can see the complete list of today’s Zacks #1 Rank stocks here.

Will a Repeal Be Easy?

Modifying Obamacare will bring its own set of woes. It is likely to raise the number of Americans without insurance by 24 million and increase the deficit by $353 billion over 10 years, according to a report by the Congressional Budget Office.

How Did Insurers Fare Under Obamacare?

Obamacare was one of the most sweeping changes experienced by the health care industry. Its numerous provisions put a bridle on the players and changed the face of the industry. After opposing vehemently to the law initially, the players somehow embraced it. This resulted in significant modifications to their business that included new product launches, geographical diversification, growing ancilliary business, and resorting to mergers and acquisitions.

These business changes led to additional cost of investment. This was offset by an increase in revenues that came on the back of membership growth as a result of individual mandate, which forced the uninsured to get insurance cover.

Now, after sharing space with Obamacare for six years, insurers will have to start afresh to comply with the sea change that TrumpCare will bring. We wait to see, how they fare under the changed regulation.

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‘Trumpcare’ Unfairly Blasted by Critics

A new study by the bipartisan Committee for a Responsible Federal Budget (CRFB) claims Republican presidential candidate Donald Trump’s plan to repeal and replace Obamacare is going to cost roughly $500 billion over 10 years and would cause 21 million Americans to lose their insurance coverage. A closer look reveals CRFB’s report is severely flawed and a wildly inaccurate depiction of Trump’s plan. A fair look at Trump’s proposals, called “Trumpcare” by many, shows the real estate mogul’s health care policies offer many good reforms that would help lower costs and improve the health insurance marketplace.

On a page featured on Trump’s website titled “Healthcare Reform to Make America Great Again,” Trump outlines seven broad health care reform proposals, including repealing Obamacare, allowing health insurance companies to sell policies across state lines, health insurance deductions, enhancing health savings accounts (HSAs), and block-granting Medicaid to the states. CRFB says taken together, these provisions will cost nearly $1.6 trillion and save only about $1.12 trillion, creating a $500 billion deficit. CRFB estimates the “dynamic effects” from economic growth related to repealing Obamacare would likely add another $220 billion in tax revenue, meaning the total cost of Trump’s plan under dynamic scoring is $270 billion.

The two most significant costs under Trumpcare, according to CRFB’s report, will be the repeal of Obamacare-related taxes and the Obamacare-mandated “Medicare savings,” which it estimates to be $880 billion. The most notable savings come from the repeal of federal subsidies for those purchasing insurance in an Obamacare health insurance exchange and the federal government’s share of Medicaid expansion.

CRFB’s report echoes claims made by many critics of Trump’s health care proposals, which are very similar to those offered by other Republican presidential candidates and GOP members of Congress. There are several significant flaws with critics’ claims.

First, although CRFB acknowledges Trump’s plan to block-grant Medicaid to the states, which means states would receive a lump sum of money to use for their Medicaid programs in any way they choose, it doesn’t factor any potential Medicaid savings from this move. Toward the end of its report, CRFB acknowledges that block-granting Medicaid “could more than pay for the cost of repealing and replacing Obamacare – though perhaps at the cost of a further reduction in coverage.”

Even that claim is an incredible and important understatement. According to CRFB’s own estimates, which are based on projections made by the Congressional Budget Office (CBO), if block grants were to be set at current levels, growing with the inflation rate, the proposal could save as much as $470 billion over 10 years. If the growth of block-grant funds is tied to per-person spending, also tied to inflation, savings would be as much as $350 billion over 10 years. This means the net savings from Trump’s plan could be between $80 billion and $200 billion.

CRFB says that because Trump’s campaign has yet to provide the details of its Medicaid block- grant program, it can’t factor those savings into its estimates, but choosing to create any sort of an estimate without such an important piece of the puzzle is irresponsible and creates a totally inaccurate picture of what Trump’s plan, as well as the plans of many others who support repealing and replacing Obamacare, will actually look like in its final form.

Second, CRFB doesn’t factor into its estimates any potential savings that would result from Trump’s plan to improve health savings accounts, which could have a revolutionary impact on the U.S. health care system. Under Trumpcare, all Americans would be able to set up a health savings account. Contributions made to HSAs would be completely tax-free and could accumulate over time. Trump’s plan even allows individuals to pass on HSAs to their heirs – without any penalties. HSAs could be used to pay for health insurance or out-of-pocket health care expenses.

HSAs in their current, limited form have already produced notable savings. According to Heartland Institute Senior Fellow Peter Ferrara,“Total HSA costs, including the savings to fully fund the HSA savings account to cover the deductible, have run about 25% less than the costs for traditional, old-fashioned insurance.”

Third, CRFB estimates Trump’s proposal will knock more than 20 million people off of their health insurance plans. That estimate is also inaccurate and irresponsible, because Trump’s Medicaid block-grant program would allow each state to decide exactly how to deal with people who are struggling to pay for health insurance. Further, because the details of Trump’s Medicaid block-grant plan have yet to be released, there’s no accurate way to judge its effects.

If free-market reforms such as those offered by Trump and other Republican presidential candidates and members of Congress are made into law, health care quality and costs will rapidly and remarkably improve, ushering in a new era of health and wealth.

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