Medicare


Fixing Medicare

Five Steps to Reform

Simply repealing Obamacare won’t solve all the nation’s health care woes, which is of course why the rallying cry has been “repeal and replace.” One of the most difficult problems facing policymakers is how to fix Medicare, which has become a crushingly expensive entitlement.

Fortunately, there are some good ideas for reforming Medicare, as explained in a short paper that I recently wrote with Robert Moffit of the Heritage Foundation:

In the 21st century, a renewed Medicare should be firmly based on patient choice and market competition. Such reform could be achieved through the creation of a new system of “premium support,” where the government makes a direct and generous contribution to the health plan of an enrollee’s choice, and health plans and providers compete directly for beneficiaries’ health care dollars. Premium support would give future Medicare patients control over the flow of Medicare dollars and decisions, guarantee personal choice of health plans, and let them secure the best value for the money. This is the kind of consumer choice model that federal workers and retirees in the Federal Employees Health Benefits Program (FEHBP) enjoy. It is a popular and successful approach because it emphasizes personal choice among plans, and government oversight ensures consumer protection and transparency.

The full paper is available in HTML here, or as a PDF here.

posted by James C. Capretta | 2:30 pm
Tags: Congress, Medicare, health savings accounts
File As: Health Care

Reforming Health Care with “Defined Contributions”

Over at Kaiser Health News, AEI’s Tom Miller and I have an article describing how Congress enact a health-reform program that deals with the central issue of cost control while also achieving universal coverage without the need for a mandate:

Pro-competition, pro-consumer-choice advocates should press for reforms that would begin to convert existing, federally subsidized arrangements from open-ended benefit guarantees into "defined contribution" programs. The comprehensive and strategic approach we propose would apply defined contribution financing by taxpayers to all three major insurance coverage platforms — Medicare, Medicaid and private health insurance....

The prescription drug benefit, added to Medicare in 2003, provides one partial model for how to move toward a defined contribution approach. The government's payment for a beneficiary's Medicare drug coverage is fixed through competitive bidding each year, and it remains the same regardless of which plan the beneficiary selects. Seniors selecting more expensive plans than the average bid must pay the additional premium out of their own pockets. Those selecting less expensive plans get to keep the savings. Scores of insurers entered the program and competed aggressively with each other. The result is that costs were driven down, and federal spending came in 40 percent below initial expectations....

Read the full article here.

posted by James C. Capretta | 10:30 am
Tags: defined contributions, Medicare, individual mandate
File As: Health Care

The “Doc Fix” and Paul Krugman’s “War on Logic”

During the yearlong debate over Obamacare, the law’s apologists returned over and over again to the supposed fiscal benefits flowing from its provisions as a top selling point. Pass Obamacare, they said, and we’ll have health insurance for everyone, painless cost-cutting to slow rising premiums, and deficit reduction to boot. Its win, win, win!

No one believed them, of course. The claim of deficit reduction may have provided a fig leaf to allow some wavering congressional Democrats to vote yes, but it didn’t convince a skeptical electorate. Most Americans have too much common sense to buy the argument that what the nation needs to get its fiscal house in order is a new trillion-dollar-plus entitlement program, piled on top of the unaffordable ones already on the books.

Sure, on paper the Democrats might be able assemble “offsets” to make it look like the program was “paid for.” But even a casual review of the legislation and associated analyses reveals what most people intuitively know to be the case: that Obamacare combines dead-certain entitlement expansion (for at least 30 million people, and probably many millions more) with budgetary sleight of hand and “pay fors” that are either phony or altogether implausible.

Nonetheless, as the House readies a repeal vote for this week, Obamacare enthusiasts are back at it again, claiming once again that Obamacare supporters are practitioners of fiscal discipline, while those who want to undo the largest expansion of government in nearly half a century are the budget busters.

To be sure, it’s a tough sell, but Paul Krugman of the New York Times is eager to give it a try nonetheless. He claimed in his Sunday column that the Republican contention that Obamacare is a budgetary disaster amounts to a “war on logic.”

But Krugman’s attack is itself illogical, and inaccurate too. He focuses most of his attention on the so-called “doc fix,” which is the periodic legislation passed by Congress to prevent deep and unrealistic cuts in what Medicare pays for physician services. Republicans have argued, accurately, that the accounting for Obamacare omits the “doc fix” spending, and that if it were included, the supposed deficit reduction from Obamacare would vanish altogether, even before the other gimmicks and implausible assumptions were exposed and removed.

Krugman contends that this Republican argument is illogical because, in effect, the real “baseline” of federal spending already includes higher physician fees. With or without Obamacare, Congress is going to spend more on physicians, Krugman suggests, therefore Obamacare shouldn’t get charged for it.

But that’s not what’s really going on here. If Krugman’s analysis were accurate, why does Congress go through the annual agony of a “doc fix” at all? Why haven’t they just passed a permanent solution already and gotten it over with?

The answer is that, while Congress doesn’t want to cut physician fees, it hasn’t wanted to pile the costs onto the national debt either. What has held back a permanent solution is the inability to find $200–$300 billion in acceptable “offsets” to make sure a permanent fix doesn’t add to the deficit.

When President Obama assumed office, he wanted his health bill and a permanent “doc fix” too, but he didn’t have enough flimsy offsets to grease the way for them both. So he came up with a new “solution”: use the offsets to pave the way for Obamacare’s spending, and exempt the “doc fix” from the need for offsets at all. This would create the perception of “deficit reduction” from Obamacare even as an unfinanced “doc fix” ran up the deficit by an even larger amount.

At the end of the day, even some Senate Democrats balked at this shameless sleight of hand and blocked the effort to pass an unfinanced and permanent “doc fix.” But the issue remains very much unresolved, and the administration has yet to disavow their push from last year to pay higher physician fees with borrowed money.

Krugman also seems completely unaware that the Medicare cuts that are supposed to pay for Obamacare’s entitlement spending are of the same type as the physician-fee cuts he now wants to assume away. They are arbitrary and unrealistic too, so much so that the chief actuary for Medicare considers them entirely implausible. He projects that if Obamacare’s Medicare cuts were allowed to remain in effect for long, Medicare’s payment rates would fall below those of Medicaid, which are so low that Medicaid patients often have trouble accessing care. And yet Obamacare’s apologists want us to believe we can safely erect a massive new entitlement based on the assumption of future savings from these cuts.

In truth, the Krugman critique doesn’t lay a glove on the Republican argument. He doesn’t even try to defend the CLASS Act, another new entitlement for long-term care. As a start-up program, CLASS collects $70 billion in front-loaded premiums during its first decade. Krugman and others want to count this money toward Obamacare, even though every analysis available shows CLASS will itself need a bailout when its costs balloon beyond ten years. And then there’s the so-called “Cadillac” tax that starts in 2018. The tax is so unpopular with Democratic constituencies that President Obama was never willing to collect it himself (if reelected, he will leave office no later than January 2017). But Obamacare’s defenders argue this tax can be counted on to produce trillions in new revenue beyond 2020.

If liberals and Democrats want to make the fight over Obamacare about taxes, spending, and the budget deficit, Republicans should allow them to do so. The public has already taken sides in this fight. Taxpaying Americans are never going to be convinced that the government has found a way to give away new benefits to millions of people, with no cost to them or anyone else.

[Cross-posted at Critical Condition]

posted by James C. Capretta | 1:56 pm
Tags: Medicare, doc fix, Paul Krugman, CLASS Act
File As: Health Care

The Importance of Ryan-Rivlin

The political ground has been shifting rapidly ever since the American people delivered a vote of no confidence on the current direction of public policy when they went to the polls earlier this month.

Nowhere is that shift more evident than in the recent release of a bipartisan plan to dramatically reform the nation’s health entitlement programs. Sponsored by incoming House Budget Committee Chairman Paul Ryan and former Clinton administration budget director Alice Rivlin, the “Ryan-Rivlin” plan represents a real breakthrough in the long standoff between the parties over how to address the most pressing problem in the federal budget, which is the relentless, long-term rise in costs of Medicare and Medicaid. Ryan and Rivlin both serve on the presidential commission looking at ways to reduce the nation’s short- and long-term budget deficits, and they offered their health-entitlement reform plan to their fellow commission members for consideration.

In Medicare, the Ryan-Rivlin proposal would be transformative. It picks up on a key feature of Rep. Ryan’s “Roadmap” budget plan, which is that new enrollees in Medicare after 2020 would receive their entitlement in the form of a fixed contribution from the federal government rather than today’s defined benefit program structure. These Medicare enrollees would then apply their entitlement against the cost of health insurance. The value of the defined-contribution payment from the government would grow at a rate of GDP per capita plus one percentage point. The plan would also restructure Medicare for current beneficiaries by rationalizing the cost-sharing with a single, higher deductible and more uniform coinsurance across care settings, as well as an out-of-pocket cost limit. Secondary insurance plans would be prohibited from covering the first $500 of the deductible or more than half of the cost-sharing for services.

For Medicaid, Ryan and Rivlin propose moving toward a fixed block grant payment from the federal government to the states. The block grant payments would be indexed to grow with the size of the Medicaid population as well as per capita GDP growth plus one percentage point. The plan does not specify in detail what new flexibility the states would receive to administer the program, but it would presumably be significant new freedom to make changes as needed to run Medicaid according to state priorities.

Beyond Medicare and Medicaid, the plan would also impose limits on noneconomic and punitive damages in medical liability cases as well as repeal the ill-advised long-term care program (called the “CLASS Act”) that was created in the recently passed health care law.

The Congressional Budget Office (CBO) has already issued a preliminary assessment of the budgetary implications of Ryan-Rivlin, and the results are impressive. Over the next decade, Ryan-Rivlin would cut federal deficit spending by $280 billion, and by 2030, federal spending on the major health entitlement programs would be about 1.75 percent of GDP below a reasonable baseline projection.

But the importance of Ryan-Rivlin goes well beyond its details and current CBO cost estimate. The fundamental problem in American health care is that the federal government is providing open-ended financial support for health insurance coverage. Most Americans get their insurance through Medicare, Medicaid, or employer-sponsored insurance. And in each case, the federal government’s support for that coverage increases commensurately with costs. So when costs or premiums rise by an extra dollar, the federal treasury is picking up a sizeable portion of the added expense, thus substantially undermining the incentive for economizing by those enrolled in the coverage or those providing the services.

The solution is an across-the-board move toward more fixed federal financial support for coverage. That’s a central element in the Ryan Roadmap, and has been a theme in just about every market-based reform of health care proposed over the past quarter century. At various times, moving away from open-ended entitlements has gotten the support of some Democrats, most especially when former Senator John Breaux championed “premium support” for Medicare in the late 1990s. But, by and large, most Democrats have resisted these kinds of moves and attempted to control entitlement costs with arbitrary price controls instead.

Ryan-Rivlin is thus an important step because it brings a prominent official from the Clinton administration onto a proposal that would decisively move away from the health entitlement status quo. That’s no small matter.

Ryan-Rivlin is far from ideal. It is largely silent on ObamaCare, which would push the health system in precisely the wrong direction by extending open-ended entitlement promises to millions of new people. Households with incomes below four times the poverty line would see their premiums capped as a percentage of their income, regardless of the expense of their health plan coverage. Moreover, the new law leans heavily on price controls to cut costs, which only distort the marketplace and undermine the quality of American medicine. These damaging aspects of ObamaCare would substantially undermine the benefits that the Ryan-Rivlin approach would produce. The lesson is that there’s no getting around the need to repeal ObamaCare in its entirety. If it remains in place, there will be little that can be done to stop a full government takeover. What’s needed is a full replacement program, with fixes not only for Medicare and Medicaid but also for the tax treatment of health insurance so that workers too become cost-conscious consumers in a reformed marketplace.

Still, Ryan and Rivlin should be applauded for taking this courageous step and putting their health entitlement reform plan on the table for consideration. It is a clear demonstration that the conversation has shifted, and in a much more positive direction. 

posted by James C. Capretta | 5:56 pm
Tags: Paul Ryan, Alice Rivlin, Ryan-Rivlin proposal, Roadmap, debt commission, Medicaid, Medicare
File As: Health Care

Flimflam Indeed

Megan McArdle did everyone a favor this past week by very carefully pointing out that Paul Krugman’s over-the-top attack on Congressman Paul Ryan and his “Roadmap” was based primarily on bad information that could have been easily checked and corrected with some minimal effort.

You’d think Krugman might take a look at her critique; listen to his likeminded friends (see here), who clearly think his piece went over the line; and change the subject. But no, you would be wrong. As McArdle notes, instead of admitting his error and moving on, Krugman plows ahead and concocts, in a follow-on to his original column, a second, alternative theory of supposed tax-estimating deception on the part of Ryan — which McArdle also points out is not true. Strike two. Of course, perhaps anticipating that his latest seat-of-the-pants explanation of why Ryan should be criticized for evading accountability won’t hold up either, Krugman also throws into his broadside that, whatever else might be said, Ryan is a good-for-nothing just for failing to admit that his proposal will “dismantle Medicare as we know it.”

Never mind that Ryan’s Medicare proposal most closely resembles the recommendations of the last Medicare Commission from the late 1990s, chaired by Democratic Senator John Breaux. And never mind that a variant of it was proposed by Henry Aaron and Robert Reischauer in 1995. Neither has ever been accused of conspiring with the right. And they weren’t accused of wanting to “dismantle” Medicare.

Let’s face it. Krugman wrote his original column in a botched attempt to take Ryan down a peg or two. He saw the New York Times and the Washington Post publish relatively balanced pieces on Ryan in recent days, as well as friendly commentary from others on the left, and he felt it was his duty as the conscience of the liberal elite to make it clear that what the moment requires is a concerted Ryan-vilification campaign, not pieces in the mainstream press that, in so many words, say Ryan is good guy with typically awful Republican ideas.

But perhaps some good can come from Krugman’s rant despite the little problem of being inaccurate. Indeed, if a byproduct of the Krugman barrage is a broad public awakening to the very real dangers of unguarded consumption of public policy flimflammery, then it will have served a useful purpose. Because, in truth, allowing large amounts of flimflammery to go unchallenged can cause real damage to informed discussion of the important matters of the day.

Which brings us back to Paul Krugman and his blog. Just before launching into his anti-Ryan tirade, he posted the real deal: flimflam of the highest order.

On the day the Medicare trustees issued their annual report, Krugman rushed out a post highlighting the apparent good news. The new health law had bent the curve after all. Medicare spending in the 2010 report would grow at a much slower pace than was projected a little more than a year ago, thanks to the effective cost-cutting measures in the new law. This, Krugman said, was the finding of the “Medicare actuaries.”

But, as it turns out, the chief actuary for Medicare, in the back of the annual report, advised the public to essentially ignore the findings of the trustees because they were based on utterly unreliable data. He pointed readers instead to an alternative projection that shows Medicare spending rising to 10.7 percent of GDP in 2080, just a hair below the 11.2 percent of GDP projected for 2080 in last year’s report. In other words, no, the curve hasn’t been bent.

Moreover, the supposed savings in Medicare that will never materialize facilitated the creation of another runaway entitlement program. It isn’t counted in the Medicare trust fund projections, but spending from it will be very real indeed, in 2080 and every other year. Altogether, it’s absolutely clear that Obamacare raised federal entitlement spending on health care well above what it would have been under prior law.

Krugman and others argue that Paul Ryan’s Medicare plan is flawed because it is a formulaic cut that would shift costs onto the nation’s seniors. But, as it turns out, that’s exactly what the actuaries say is wrong with the Obama-Krugman plan. The enlightened cost-cutting that Krugman finds so attractive in the new law turns out to be nothing more than simplistic and formulaic across-the-board payment-rate reductions for institutional providers of care. Under the new health law, these payments rates would get cut every year below the rise in the cost of doing business by a formula that the actuaries say is completely disconnected from reality. By the end of this decade, Medicare’s payment rates would fall below those of the Medicaid program, which has rates that are so low today that the network of providers willing to see Medicaid patients is very, very constrained. In time, Medicare payments would cover just one-third of the cost of care that private insurers would be paying.

But let’s give Paul Krugman credit. He was right to suggest that there was flimflam in the air. He just misidentified its source.

posted by James C. Capretta | 5:01 pm
Tags: Paul Ryan, Paul Krugman, Megan McArdle, flimflam, chief actuary, Medicare
File As: Health Care

A Fraud Exposed — and Ignored

“Law Will Extend Medicare Fund, Report Says,” was the New York Times headline. “Medicare Funds to Last 12 Years Longer Than Earlier Forecast, Report Says,” was the similar take of the Washington Post. Those two stories were upbeat summaries of what the latest report on Medicare’s long-term financial outlook supposedly revealed.

But was that really the most newsworthy headline here?

It might actually have been more newsworthy that the person who compiled all of the data for this report, and knows its contents better than anyone else, utterly repudiated its findings.

That’s right. Richard Foster, the chief actuary of the Medicare program and the man responsible for overseeing the production of the data which forms the basis of this annual report’s forecast, has advised the public — in his official “Statement of Actuarial Opinion” printed at the end of the trustees’ report — not to believe any of the modestly rosy conclusions contained within it.

It’s hard to overstate the importance of this development. Here is the president’s point man for assessing the financial status of Medicare declaring that much of the claimed benefits for Medicare from the recently passed health-care law — benefits that the president himself again touted on Saturday — are not to be believed. You’d think it might be news if the top expert in government essentially said the president of the United States is basing his public assertions on one of the most important issues of the day on flawed and misleading data. But apparently not.

Foster and his staff began exposing the fraudulent nature of the Medicare claims months ago. In their April analysis of the final health legislation, they agreed with the Congressional Budget Office and every other commonsense person that the same dollar can’t be spent twice. If the Medicare cuts in Obamacare are to be believed (a big “if”), they could be used to improve Medicare’s financial outlook, or to pay for another entitlement program, but not both. But of course Obamacare’s apologists continue to argue that both were financed by the Medicare cuts. The unfortunate consequence of this duplicity is that, eventually, taxpayers will be left holding the bag. At some point, they will be asked to pay higher taxes to finance Medicare spending as well as a new entitlement for health insurance, both of which were supposedly covered by the Medicare cuts.

But it’s actually far worse than just that. As Foster notes, the Medicare cuts upon which the president’s claims of additional Medicare solvency rest are so absurdly unrealistic that they can hardly be taken seriously at all. Despite all of the talk of painless “delivery-system reform” in Medicare, the big cuts come, as usual, from arbitrary and deep across-the-board payment-rate reductions for hospitals and other institutional providers of care.

Each year, these institutions get an inflation increase in their payment rates, to reflect a rise in their input costs. Under Obamacare, those inflation increases will now be cut by an amount averaging a little over a half of a percentage point every year, in perpetuity. The compounding effect of cuts of this size is truly massive, and entirely implausible. As Foster and his colleagues document in an accompanying analysis released on the same day as the annual report, these payment-rate reductions simply widen the gap between the cost of providing care and what the government will pay. Even before the cuts become operational, Medicare’s rates stand at only about 80 percent of what private insurers must pay to secure access to care for patients. But under Obamacare, by 2020, Medicare’s rates would have already fallen below 75 percent of private insurers’ rates, and below what Medicaid pays as well. By the end of the projection period, Medicare’s rates would cover only about one-third of the payments that private insurers would be making to secure access to services.

Obamacare’s apologists would like Americans to believe they have set in motion a sophisticated and carefully considered plan to slow cost growth in Medicare — and the rest of the health system for that matter. But the truth is that all they have done is put into law a formulaic requirement for deeper price cuts in Medicare. That’s it. Presto! Problem solved!

But of course, the problem is not solved. Arbitrary price controls always and everywhere drive out willing suppliers of services. Who will see Medicare patients at 33 cents on the dollar?

When more realistic assumptions are employed by the Medicare actuaries, the supposed improvement in Medicare solvency all but vanishes. In the annual report, the unfunded liability of the Medicare fund for hospital services is said to have fallen to “just” $2.4 trillion over 75 years. But if more realistic payment-rate assumptions are used, the unfunded liability rises to $7.0 trillion.

Even correcting for the implausibility of payment-rate cuts does not offer a realistic scenario. The other key Medicare provision in Obamacare is the return of Carter-era “bracket creep” in the tax system. Initially, the law’s steep payroll-tax hike of 0.9 percent of wages will apply only to individual taxpayers with annual incomes exceeding $200,000 and couples with incomes exceeding $250,000. But those income thresholds will not increase with general inflation in the economy. Consequently, as the years pass, more and more Americans, including the middle class, will pay it — at least that’s the theory. Overall, the Medicare tax hikes in the new law are expected to raise about $1.4 trillion over 75 years, in present-value terms. But that assumes America’s middle class will placidly accept the return to the bad-old days of “bracket creep.” A more realistic assumption would be that elected leaders will come under pressure in short order to prevent such a massive tax hike on the middle class and respond accordingly, much as they do today in trying to minimize the tax hikes associated with the alternative minimum tax.

Overall, Foster and his team make clear in their alternative projection scenario that Medicare spending remains on a completely unsustainable trajectory. In last year’s annual report, Medicare spending was expected to reach 11.2 percent of GDP in 2080, up from just over 3 percent today. Now, using what the actuaries consider reasonable assumptions, Medicare spending would “only” rise to 10.7 percent of GDP. So much for the Obamacare solution.

posted by James C. Capretta | 3:01 pm
Tags: actuary, Medicare, annual Trustees report
File As: Health Care

Obamacare: Impact on Future Generations

I have a column up at Heritage.org today on the health care reform law's supposed budget pressure reduction:

The President and congressional leaders have argued that a primary benefit from the health law will be reduced long-term budget pressure and thus a brighter future for coming generations of taxpayers. But when the cost estimate is adjusted for omissions, gimmicks, double-counting, and unrealistic assumptions, it is clear that the new health law will increase the burden, not lessen it.

One recent estimate projects the bill will add more than $500 billion to the deficit over the next 10 years and $1.5 trillion in the decade following. And any cost-cutting that does occur under the new law will come in the form of arbitrary governmental controls that will put up barriers to care in future years.

Read the whole thing here.

posted by James C. Capretta | 3:02 pm
Tags: Medicare, doc fix, CLASS Act
File As: Health Care

The Independent Payment Advisory Board and Health Care Price Controls

I have a column up today at Kaiser Health News on the new Independent Payment Advisory Board created in the recently passed health legislation. Here's an excerpt:

....the [Independent Payment Advisory Board] — a 15 member independent panel, to be appointed by the president and confirmed by the Senate — is now charged with enforcing an upper limit on annual Medicare spending growth. That’s right: Medicare spending is now officially capped. Even most people who follow health policy closely don’t seem to know this. Perhaps it’s just too hard to believe that a Democratic Congress, prodded by a Democratic president, actually voted to cap spending for a cherished entitlement.

But make no mistake: Beginning in 2015, Medicare spending is now supposed to be limited, on a per capita basis, to a fixed growth rate, initially set at a mix of general inflation in the economy and inflation in the health sector. Starting in 2018, the upper limit is set permanently at per capita gross domestic product growth plus one percentage point.

One might be tempted to think this is an area of the legislation which should have gotten some bipartisan support. After all, in the past, it’s the Republicans who have pushed for these kinds of caps on entitlement costs, with Democrats fighting them every step of the way. Conservatives know that if they are to have any hope of fighting off a major tax increase to close the nation’s budget gap, Medicare spending growth has to be slowed, and soon.

But the IPAB provision is actually an indicator of why there is a great divide in American health policy. To hit its budgetary targets, the IPAB is strictly limited in what it can recommend and implement. It can’t change cost-sharing for covered Medicare services. Indeed, it can’t change the nature of the Medicare entitlement at all, or any aspect of the beneficiary’s relationship to the program. The only thing it can do is cut Medicare payment rates for those providing services to the beneficiaries.

This wasn’t an accident. It reflects the cost-control vision of those who wrote the bill. They believe the way to cut health care costs is with stronger federal payment controls. They envision the IPAB coming up with new payment models which will push hospitals and physicians to emulate today’s most efficient delivery models. Call it “government-driven managed care.”

Read the full column here.

posted by James C. Capretta | 4:35 pm
Tags: IPAB, Medicare, entitlements, Obamacare
File As: Health Care

Deficit-Cutting Mythology

For months, one of the primary talking points pushed by the president and his allies in Congress is that their health-care plan would reduce the federal budget deficit substantially, especially during the second decade of the program’s implementation.

This claim has always rested on completely implausible assumptions, gimmicks, and sleight of hand, all of which has already been well exposed by Congressman Paul Ryan and others.

Still, some myths persist and require repeated debunking.

For instance, Ezra Klein and others say the health-care bill shouldn’t be assessed the $371 billion in ten-year costs associated with the so-called “doc fix” because everyone knows the money is going to be spent anyway. Under current law, Medicare physician fees are being cut 21 percent from last year’s level, which neither party supports. Of course, there are more and less expensive ways to reform the Medicare physician fee schedule; there is some discretion there. But the real point is that the Democrats want to spend the money on physician fees without an offset, on a permanent basis. That is new. That’s not how the Bush administration and Congress approached the problem in the past. In previous years, Congress struggled to find the offsets to pay for year-by-year fixes, and not always successfully. But because they could never agree on acceptable offsets for a longer-term plan, they never attempted to pass one. They weren’t going to simply add all of the costs of higher physician fees to the annual federal budget deficit in perpetuity.

But that’s exactly what the Obama administration and its congressional allies want to do. They are increasing the cost of Medicare (through the doc fix) at the same time that they are cutting Medicare (reducing the payment-rate increases and cutting Medicare Advantage), but since they are just adding the cost of the doc fix to the budget deficit, they can claim all the Medicare cuts as savings scraped together to pay for the massive entitlement expansion included in the health bill. If they succeed with this approach, the effect will be to dramatically increase the nation’s budget deficits and debt. Indeed, the increase in deficit spending from higher Medicare physician fees is more than three times the claimed deficit reduction from the entire health bill over the next decade.

Beyond ten years, Democratic claims of substantial deficit reduction from the health bill have rested entirely on two provisions.

First, there’s the “Cadillac tax.” In the Senate-passed bill, the tax takes effect in 2014, and the threshold used to determine what constitutes “high-cost” would rise annually at a rate well below expected medical inflation. Consequently, as the years passed, more and more Americans would find themselves in plans considered “high-cost.” In time, virtually the entire middle class would get hit by the tax.

But, as we now know, the president and his Democratic allies never really had the stomach to impose this tax themselves. Under union pressure, they have promised to delay it until at least 2018, well beyond the point when the president will have left office. But the White House and congressional leaders still want to claim credit for all of the revenue that would occur beyond 2019 if by some chance a future president and a future Congress are more willing than they are to impose this tax.

The other key provision for claims of long-term deficit cutting is the permanent annual reduction in the payment-rate increase for hospitals and other facilities from the Medicare program. Under current law, hospitals get an increase each year in what they are paid for certain services based on rising input costs. The Democrats are planning to cut the inflation increase every year by half a percentage point. Over time, the compounding effect of an annual cut of this size would be very large. But the chief actuary of the program has warned repeatedly that it is unrealistic. Despite all of the claims of “delivery system reform” and painless weeding out of inefficient care, this arbitrary cut is business-as-usual. There’s no effort to calibrate payments based on performance or how well patients are treated. Its across-the-board cuts for everybody. And the chief actuary says, if implemented, one in five facilities would be pushed into serious financial distress.

The hypocrisy is stunning. Even as the Democrats want to wave a magic wand and pass a $371 billion “doc fix” to undo a previously-enacted arbitrary cut in payment rates, they now want to impose another one and use the supposed savings to grease the way for the largest entitlement expansion in a generation.

All of this scheming and maneuvering is catching up with them. The Washington Post reports today that CBO now says the latest version of the Democratic plan will no longer cut the deficit as the Democrats have claimed. That’s not surprising. To buy votes, they are upping the subsidies in the exchanges, expanding the Medicare prescription-drug benefit, delaying the Cadillac tax, and buying off countless members with other assorted and unseen deals (where are the C-SPAN cameras when you really need them?). Little wonder that even their phony deficit-reduction claims have now evaporated.

But the game is not over. Even now, they are going back to CBO with another bag full of tricks. They will never actually impose any sort of real budget discipline, of course. That would cost them votes. But no gimmick is too shameless for them; they will do anything if allows them to claim that enactment of another runaway entitlement program will actually improve our long-term budget outlook.

Fortunately, the public is not buying it. The American people see through the smokescreen. They know full well that Congress wants to put in place another unfinanced and expensive entitlement program, even as the federal government is piling up debt at a record pace. Which is why they are telling their elected representatives in every way they can to stop the madness already — and start over.

posted by James C. Capretta | 2:52 pm
Tags: Ezra Klein, Paul Ryan, doc fix, Medicare, Medicare Advantage, payment-rate increases, Cadillac tax, CBO
File As: Health Care

White House “Summit”: Medicare Advantage Confusion

The president is trying to make it seem like the only cuts in the Medicare program he is advocating are for Medicare Advantage (MA) plans. That’s demonstrably not true. The chief actuary has raised concerns about the payment-rate reductions that the Democrats are pushing for hospitals in the traditional program. He believes those cuts will harm access to care. That’s one of the points Congressman Paul Ryan made earlier.

Regarding Medicare Advantage, there were several assertions made by the president that also are not true. First, MA enrollees tend to have lower income than the average Medicare beneficiary. Second, the cuts will come right out of benefits. That’s why seniors sign up with the MA plans — to get better benefits that the president would take away.

Here’s what Republicans should say: The president says he want to save money in Medicare Advantage with competitive bidding. But he would leave the traditional program out of the bidding. That’s a one-sided proposal. If he wants competitive bidding, Republicans should say, “Fine.” But it has to include the entire program. And then watch how fast the Democrats run away from the idea.

posted by James C. Capretta | 3:39 pm
Tags: Medicare Advantage, chief actuary, Medicare, White House plan
File As: Health Care

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