Health Care


The cuts to Medicare Advantage under Obamacare

September 14, 2010

I had a piece in The Daily Caller yesterday with Robert A. Book of the Heritage Foundation, discussing payment cuts to the Medicare Advantage program that will occur under the new health care law:

President Barack Obama has repeatedly promised Americans that if they like their current health insurance plans, they will get to keep them under the legislation he championed and Congress passed earlier this year. But that’s demonstrably not true for millions of senior citizens who are enrolled in Medicare Advantage (MA) plans today.

MA plans are the private insurance options available to Medicare beneficiaries. The Medicare program pays these plans a fixed monthly fee to provide Medicare services to plan enrollees. Most MA plans also offer better coverage and lower co-pays and deductibles than provided by traditional Medicare.

The new law will impose deep cuts in the payment rates for MA plans, beginning with a payment freeze in 2011.... We have estimated what these cuts will mean for Medicare beneficiaries — those who are in MA today and will be in the future, as well as for those who would have enrolled if not for the cuts — when fully implemented in 2017. The results are staggering....

When these cuts are imposed, MA plans will have no choice but to scale back their offerings to seniors to avoid insolvency. That will mean higher premiums, increases in deductibles and co-payments, and elimination of coverage for things like preventive services not covered by Medicare and vision and dental care. Some MA plans will exit markets entirely because of the cuts, leaving some Medicare enrollees with no choices whatsoever.

Read the full article here.

posted by James C. Capretta | 2:24 pm
Tags: Medicare Advantage
File As: Health Care

Debunking Medicare Myths

September 2, 2010

Here’s a puzzle: Critics say Medicare Advantage plans — the private insurance options offered to beneficiaries — are inefficient and costly. But those same critics oppose vouchers for Medicare — even though that would set up a direct competition between the private plans and the traditional fee-for-service program.

What are they afraid of?

After all, if the case critics (see Austin Frakt’s August 19 KHN column) make is correct and private insurers simply can’t do the hard work of cost control as well as the government, then Medicare’s “public option” would presumably win this contest.

But that’s apparently not how these critics see things. They are just as resistant to subjecting Medicare fee-for-service to a level playing field of competition as they are enthusiastic about cutting Medicare Advantage’s administratively determined payments.

Indeed, when the bipartisan leadership of the Medicare Commission in the late 1990's recommended a move toward a voucher-like program, would-be defenders of government-administered, fee-for-service Medicare viewed it as a mortal threat (“privatization!”). They took this position even though the fee-for-service plan would have been preserved as one of the options for beneficiary selection. In the end, the Clinton administration killed the idea to avoid offending the defenders of the fee-for-service status quo.

The Obama administration’s preferred approach to Medicare Advantage payment “reform” — rejected at the last minute by Congress in favor of more formulaic cuts — reflects the same bias. Private insurers would have submitted bids in competition with each other, with the average bid used to set regional benchmark rates. The benchmark would then establish a payment ceiling for all private plans competing within the same geographic area. But it wouldn't have constrained Medicare fee-for-service. In regions where fee-for-service was more expensive than the average private plan, beneficiaries could have enrolled in the more expensive “public option” at no additional cost above the statutory part B premium.

It’s not just speculative musing to consider what would happen if fee-for-service were more expensive than private coverage in certain markets. Because, despite all of the talk about overpaid private plans, it turns out that some Medicare Advantage plans are almost certain to beat fee-for-service in a direct price competition. According to the Medicare Payment Advisory Commission (Medpac), the average cost of providing Medicare-covered benefits through private insurance is exactly the same as it is through fee-for-service. That average, however, includes some very loose networks.

Medpac also found that, on average, more tightly controlled Medicare Advantage HMOs provide Medicare benefits for just 97 percent of the cost of fee-for-service. These HMOs are by far the most popular form of Medicare Advantage plan, with nearly 80 percent of Medicare’s private plan enrollees choosing them.

And these HMOs win on costs despite the huge advantages fee-for-service enjoys in today’s arrangements. Fee-for-service is the default option for enrollment. If a beneficiary does nothing, that’s where they end up. There’s no advertising budget necessary. In addition, much of the administrative costs of running the fee-for-service program, such as revenue collection by the Internal Revenue Service, is not built into the premium paid by the beneficiaries. Most importantly, fee-for-service is able to dictate the prices it will pay to medical service providers. Private plans have no such option. They must negotiate contracts with their networks and get hospitals and physicians to agree to a fee schedule. Moreover, in many parts of the country, private plans are forced to pay premium rates to compensate hospitals and physicians for the losses they incur on their Medicare fee-for-service business.

But even with these advantages, fee-for-service is still more expensive than Medicare Advantage HMOs, which probably explains why fee-for-service’s advocates are so adamantly opposed to the kind of direct and transparent price competition that a move toward a defined contribution approach in Medicare would bring about.

Previous estimates by the Congressional Budget Office and the chief actuary of the Medicare program confirm that a move in this direction would lower costs in the Medicare program because in many parts of the country efficient managed care models would be able to offer coverage at much less cost than price-controlled fee-for-service. Beneficiaries who chose to remain in fee-for-service would thus pay more for the privilege of doing so, and the assumption is that many of them would decide to switch into less expensive private coverage rather than face higher premiums in the traditional program.

Nearly everyone agrees that there is tremendous waste in today’s arrangements. But it is bordering on delusional to believe that the federal government has greater capacity than the private sector to engineer a more productive and efficient health delivery system.

The federal government has been running Medicare fee-for-service for nearly half a century, and the results speak for themselves. Medicare fee-for-service is the number one reason the nation suffers from dangerously fragmented and uncoordinated care. It pays any licensed provider of medical services a fee for rendering a service to a Medicare patient, no questions asked. Every provider is paid the same, regardless of how well or badly they treat their patients. To cut costs, Congress has always found it easier to impose arbitrary, across-the-board payment reductions than to steer patients away from some hospitals or physicians who provide low value at high cost.

The recently enacted health law is no exception. Despite all of the talk of “delivery system reform,” the cuts in Medicare come from arbitrary payment rate reductions – decreases that will drive Medicare’s reimbursement levels below those of Medicaid by the end of the decade, according to Medicare’s chief actuary.

What’s needed most today in American health care is innovative change which drives up productivity and value. With the right incentives, that’s what the private sector can deliver, even as it’s been clear for some time that the federal government cannot do likewise.

posted by James C. Capretta | 5:01 pm
Tags: Medicare Advantage, vouchers, fee-for-service
File As: Health Care

The Repeal Windfall

September 1, 2010

As November approaches, Obamacare’s defenders are quite plainly desperate. They see public opinion solidly against them, and a devastating election fast approaching. Their latest gambit to protect what was jammed through Congress in March is to claim that repeal would be so costly to the federal budget that it would be impossible to pass, even with overwhelming popular support. That’s the spin some on the left put on a recent letter from the Congressional Budget Office (CBO) to Senator Mike Crapo.

But unfortunately for these advocates, that’s not what the CBO letter says. CBO’s message to Senator Crapo actually just states what is already obvious: If an effort were made to repeal just the Medicare cuts in the new law, it would, on paper, increase Medicare spending, and thus the federal budget deficit, by about $450 billion over ten years. Moreover, enacting a real “doc fix” to avoid deep and unrealistic cuts in Medicare physician fees will cost another $300 billion or so over the coming decade.

What this communication from CBO actually confirms, however, is that, contrary to White House assertions, Obamacare is a budget buster of the highest order. The claim that it would reduce the budget deficit over the coming decade has always rested on a series of gimmicks, implausible assumptions, and sleights-of-hand that have been exposed repeatedly over the past year, most especially by Congressman Paul Ryan in the presence of President Obama. Among the most egregious deceptions is the double- counting of cuts in Medicare’s reimbursement rates for hospitals and other providers of care — cuts so deep that they would push Medicare’s rates below those paid by Medicaid by the end of the decade. Even if these cuts were realistic — which they aren’t — they can’t both be used to pay for a new entitlement and to improve Medicare’s solvency, as the White House claims. The same money simply can’t be spent twice. Moreover, this money is almost certainly never going to materialize anyway because, as Medicare’s chief actuary has warned repeatedly, they would seriously reduce access to care for seniors by driving hospitals and physicians out of the program. It is all but inevitable, therefore, that Congress will step in at some point to reverse the “cuts,” and probably sooner rather than later. When that happens, it will only confirm what’s already abundantly clear — that these unsustainable payment reductions should never have been allowed to grease the way for a permanent and massively expensive entitlement program.

Indeed, contrary to latest spin from the left, not only would repeal not bust the budget, it would in fact produce a budgetary windfall of such enormous size that it could pay for a sensible reform of American health care and for deficit reduction too.

The centerpiece of Obamacare is the largest expansion of entitlement spending in a generation. CBO estimates that the new law will add 35 million people to the federal government’s health entitlement rolls by decade’s end — and that’s almost certainly a lowball estimate. Gross federal spending for this added entitlement burden, plus various other spending provisions in the bill, is expected to reach $233 billion in 2019 alone, and then grow at a rate of about 7 percent annually every year thereafter. That means Obamacare’s spending will total at least $3.4 trillion over its second decade, on top of the $1.1 trillion it will cost between now and 2019. And it’s likely to be much more than that when more realistic assumptions about employer dumping of coverage are factored into the estimates.

So that’s at least $4.5 trillion in federal spending that would be avoided over the next twenty years if Congress moved ahead with repeal. Even in Washington that’s a lot of money. So much in fact that it should be more than enough to gut Obamacare’s most egregious tax hikes and spending “offsets” while still paying for a sensible reform of American health care that actually cuts costs and covers more people. And even after enacting this kind of “replacement” program, there should still be something left over to put a real dent in the massive deficits projected to occur under the Obama budget plan.

A couple of weeks ago, the left’s message gurus put out the word to Democratic candidates to abandon talk of the supposed cost-cutting that would occur under Obamacare.

They now understand that the public has not, and will not, buy the argument that a government takeover of American health care will somehow lower costs. Americans have long understood that Obamacare is a massive new spending commitment, piled on top of the unaffordable ones already on the federal books. That’s a recipe for financial disaster, not deficit cutting. The solution is repeal coupled with a reform that puts consumers, not the government, in charge of controlling costs. That’s the way to fix health care—and the budget too. And, yes, it can be done.

posted by James C. Capretta | 6:47 pm
Tags: actuary, budget, doc fix, repeal, deficit
File As: Health Care

Flimflam Indeed

August 12, 2010

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

USA Today Op-Ed: Think Health Reform Will Cut Costs? Think Again.

August 11, 2010

I have an op-ed in USA Today on the effect of health care reform on costs:

A big reason the new law is ineffective in constraining costs is that it doesn't fundamentally reform Medicare, particularly the program's dominant "fee-for-service" reimbursement option.

That model covers over 75% of Medicare enrollees, or about 35 million people. It works exactly how it sounds: Medicare pays health care providers a pre-set amount for each service. Patients are largely shielded from costs of additional services because nearly 90% have extra insurance that covers costs Medicare doesn't.

This setup creates perverse incentives. Physicians, hospitals and clinics can make more money by providing extra treatments even if they don't improve patient health. Enrollees have little reason to refuse extra care because they pay no additional costs.

Not surprisingly, that's exactly what has happened. According to the CBO, the average Medicare beneficiary used 40% more physician services in 2005 than in 1997. Similarly, physician use of medical tests increased 40% from 2002 to 2007, according to the Medicare Payment Advisory Commission. Needless to say, Medicare spending has exploded.

The full piece is available here.

posted by James C. Capretta | 6:13 pm
Tags: health care costs
File As: Health Care

A Fraud Exposed — and Ignored

August 10, 2010

“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

Orszag and Klein vs. Ryan

August 4, 2010

And so we have finally arrived at the heart of the matter.

In recent days, Peter Orszag, the now-former Director of the Office of Management and Budget (he left the position at the end of last week), and Ezra Klein, the like-minded liberal blogger for the Washington Post, have weighed in — again — on Rep. Paul Ryan’s “Roadmap.” Orszag did so in a farewell speech at the Brookings Institution, and Klein in a blog post that went up yesterday.

Their take on the “Roadmap,” and specifically how it would reform Medicare and health care, is similar and unsurprising. They both give Ryan credit for laying out a coherent and robust alternative to Obamacare. But they, as well as many other liberal commentators, also completely mischaracterize what would occur if the Ryan plan were adopted, even as they gloss over the glaring deficiencies of the reform program they favor. Indeed, the irony is that the primary criticism they level against the Ryan plan is actually the reason to oppose Obamacare.

The great divide in American health care policy is over what to do about costs. On one side are those who believe the answer is to put the federal government in the cost-control driver’s seat. That’s the fundamental premise of Obamacare. On the other side are those who believe the answer is vigorous price and quality competition in a reformed health-care marketplace. That’s the vision that animates the Ryan Roadmap.

Orszag and Klein argue that a key provision of the Ryan plan — the conversion of the Medicare defined benefit entitlement into a defined-contribution payment (for those under age 55) — would amount to nothing more than a cost shift from the government to beneficiaries because they expect the defined-contribution payment would grow at a rate below health-care inflation.

But why is that necessarily the case? Orszag himself has spent the better part of three years telling everybody he could that health care delivery today is highly inefficient. He’s right. There’s tremendous duplication and waste in American health care, much of it directly the result of the perverse incentives embedded in today’s Medicare structure. The question is, what can be done about it?

As I argued in a Galen Institute white paper released last month, the Ryan Roadmap is the answer. What’s desperately needed in health care today is a new dynamic in which efficiency and productivity are rewarded rather than punished. The Ryan program would do just that by converting millions of passive insurance enrollees (both in Medicare and in employer plans) into active, cost-conscious consumers. As more and more of these consumers received their federal support in the form of a defined-contribution payment, they would have strong incentives to get the best value possible from both the insurance they select as well as the “delivery system” they use to access services.

Orszag contends that the Ryan plan is based on a flawed premise — the notion that consumers facing more cost-sharing for services can do something about the high cost of care. He points out that most Medicare spending is concentrated in a relatively small number of high-cost cases with expenses that far exceed the up-front costs of even a high deductible plan. But the benefits of the Ryan plan would extend well beyond moving people into high-deductible insurance products. In a vibrant health care marketplace, consumers would be able to pick from among competing delivery systems too, and well in advance of needing expensive care. Hospitals and physicians would have strong incentives to reorganize and offer their services in ways that are less costly and more patient-focused in order to maximize enrollment in their networks. That’s the way to bring about genuine “delivery-system reform.”

The alternative to a reformed medical marketplace is government-driven cost control. Orszag is of course a true believer in the capacity of the federal government to engineer a more efficient health sector from Washington, D.C. — despite decades of actual experience indicating otherwise. The federal government has been running the Medicare program since 1965, and has been actively trying to use the purchasing power of that program since at least the mid-1980s to get better value for what is spent. There have been scores of demonstration projects and payment initiatives aimed at getting hospitals and doctors to change their business practices and increase their productivity. They haven’t worked. And the reason is that politicians and regulators have always found it much easier to cut costs in Medicare with across-the-board payment-rate reductions rather than reforms that single out some hospitals and physicians as low-quality providers.

Klein admits in his post that the real alternative to the Ryan program is a different sort of “cap” on spending, one that is placed on aggregate outlays, instead of entitlement payments to individuals, and enforced by governmental cost-cutting efforts instead of the marketplace. What he fails to note is that this kind of “cap” poses very real — and costly — risks to the beneficiaries, as can be seen in the provisions that were passed as part of Obamacare. Despite all of the talk of “delivery-system reform,” the real savings in Medicare from the new health law come from across-the-board payment-rate reductions which hit all providers of services the same, regardless of how well or badly they treat their patients. The predictable result of these kinds of price cuts — confirmed by the chief actuary of the program — is that many willing suppliers of services will drop out of the program, which in turn will mean restricted access to care for the beneficiaries. So much for painless cost-cutting.

The country is at a crossroads on health care. We can either stick with the Obamacare program and rely on the federal government to control costs, with all that would mean for reduced quality and waiting lists, or we can empower consumers in a reformed marketplace, as proposed in the Ryan Roadmap. This is a debate Republicans should welcome — because presented with the arguments from both sides, commonsense voters are sure to recognize that the Ryan plan is better both economically and for the future of American health care.

posted by James C. Capretta | 6:10 pm
Tags: Peter Orszag, Ezra Klein, Paul Ryan, Ryan Roadmap
File As: Health Care

The Shameless Medicare Propaganda Continues

August 2, 2010

Today, the Department of Health and Human Services (HHS) issued what it is calling a “report” on the supposed improvements to Medicare passed as part of Obamacare.

The first thing to note here is that this so-called “report” isn’t really a report at all. It provides no new information. By all rights, it shouldn’t generate any news, as it contains no news. It’s just a rehash of administration talking points, half-truths, and deceptive arguments, repeated many times previously, based on cost estimates produced by the chief actuary of the Medicare program in April and by the Congressional Budget Office (CBO) in March.

So why is HHS Secretary Kathleen Sebelius touting this so-called “report” today, four months after the law’s passage, including scheduling a conference call about it with reporters?

Perhaps it has something to do with the fact that another Medicare report — the Medicare trustees’ report — is also scheduled to come out later this week. The trustees’ report always generates news because it is the once-a-year update to the long-term cost projections for the Medicare program. The report must be approved by the Medicare Board of Trustees, which is made up almost entirely of political appointees from the Obama administration. But the report itself is largely written by the chief actuary, Richard Foster, and his staff, who are civil servants in the executive branch but, by longstanding tradition, are given much more independence than other federal workers because of the importance and sensitivity of their estimates and judgments.

That independence was on full display when the chief actuary released his cost projections for Obamacare on April 22, including a separate memorandum directly addressing the issue of Medicare trust fund solvency.

On the surface, the chief actuary’s findings would seem to confirm one of the administration’s main talking points — which is that the new health law will postpone depletion of the Medicare hospital insurance (HI) trust fund by a dozen years, to 2029. But a full reading of both memoranda makes it clear that the apparent good news on trust fund solvency is nothing but a mirage.

The problem is that the administration is trying to count the same Medicare cuts and tax increases twice, once to pay for a massive entitlement program to expand insurance coverage to low and moderate income households, and then again to fill the coffers of Medicare so future benefits can be paid.

That of course seems fishy to commonsense Americans, and for good reason. Even the federal government hasn’t found a way to spend the same money twice — a point both the chief actuary and CBO confirmed in their separate analyses of Obamacare. As stated by the chief actuary’s office, “In practice, the improved [Medicare hospital insurance] financing cannot be simultaneously used to finance other Federal outlays (such as the coverage expansions under the [the new health law]) and to extend the trust fund, despite the appearance of this result from the respective accounting conventions.”

In other words, because Congress spent the Medicare savings on a new entitlement program, when Medicare’s bills mount in 2017 and beyond, the federal government is in no better position today than it was before enactment of Obamacare to pay them. On paper, Medicare’s HI trust fund has new reserves, but those reserves are not backed by real assets. When Medicare’s costs rise, the federal government is still going to have to borrow more money, raise new taxes, or cut spending elsewhere to meet its obligations. The administration and its allies in Congress could have improved the government’s ability to pay Medicare’s bills in the future by devoting all of the Medicare cuts and taxes to deficit reduction. But that’s not what they did; consequently, we now have more government obligations and much less flexibility to find ways to pay for it all.

The HHS “report” released today also continues to ignore another important finding by the chief actuary about Obamacare, which is that the deep, arbitrary, and across-the-board payment-rate reductions for hospitals, nursing homes, and other providers of medical services are highly unlikely to be sustained because they will harm access to care for Medicare’s enrollees. The largest cut enacted by Congress would impose an annual reduction in the inflation update for many institutional providers of care. This cut would occur every year, in perpetuity, thus driving payment rates down well below what private payers will be forced to pay. These kinds of arbitrary price controls always drive out willing suppliers of services. The chief actuary expects about 15 percent of the nation’s hospitals would lose so much money from Medicare patients that they would have to drop out of the program. And yet the HHS “report” continues to argue that Obamacare will “strengthen” the program on behalf of beneficiaries.

Similarly, the HHS paper glosses over the deep reductions in the Medicare Advantage program (some $150 billion over ten years), arguing in Orwellian fashion that the Medicare Advantage cuts will somehow be good for seniors. As the chief actuary has noted, Obamacare will push millions of seniors out of the health insurance plans they voluntarily selected, and millions more will now pay hundreds if not thousands of dollars more for their health care every year as a result the new law’s cuts.

The administration is clearly in full campaign mode now. Seniors are a critical voting bloc in an off-year election. Democrats have now targeted them with taxpayer-funded mailings that are blatantly deceptive, a taxpayer-funded television campaign featuring Andy Griffith that FactCheck.org has said uses “weasel words” to avoid telling the truth, and now a Medicare “report” that is a rehash of Team Obama’s stale and discredited talking points. Unfortunately for the administration, no matter how much money they throw at the problem, it’s unlikely to work. America’s seniors have enough common sense to know that down is not up, and up is not down, no matter how many times the president says otherwise.

posted by James C. Capretta | 5:10 pm
Tags: Kathleen Sebelius, Medicare Board of Trustees, CBO, chief actuary, Medicare Advantage
File As: Health Care

A Mid-Year Update on the President’s Plan to Spend, and Then Tax, in Epic Proportions

July 26, 2010

Peter Orszag, the president’s outgoing Director of the Office of Management and Budget, released the annual mid-year update to the administration’s budget projections at 3 p.m. last Friday afternoon in a conference call with reporters. That was a dead giveaway that the administration was hoping not to make much news with its latest budget projections, or at least not make news in a way that anyone would notice.

They weren’t entirely successful in burying the report, but it’s understandable why they tried. The numbers are eye-popping. The budget deficit in 2010 is expected to set a record at $1.471 trillion — or 10% of GDP. In 2011, the administration projects the deficit will again top $1.4 trillion. From 2010 to 2020, the Obama budget plan would run up a cumulative deficit of nearly $10 trillion, and the nation’s debt would reach $18.5 trillion in 2020, up from $5.8 trillion at the end of 2008.

Even more ominous for the president is the economic forecast. It shows unemployment remaining at over 8% through the 2012 presidential re-election campaign, despite the assumption that relatively normal economic growth would have been underway for more than two years by then.

The primary problem is quite plainly out of control federal spending. In 2008, total federal outlays were about $2.9 trillion. President Obama wants to add $1 trillion to that total in 2011, or about a 33% expansion of governmental activity in just three years. And that’s just the beginning of it. By the end of the decade, federal outlays would reach $5.6 trillion, nearly double what they were a little more than a decade earlier, and that’s assuming a massive and speculative peace dividend after 2011 and cuts in domestic discretionary programs that the president has yet to identify. Of course, the baby boomers are also now entering their retirement years, and will begin flooding into the Social Security and Medicare program in the next few years, pushing spending on those programs up even more rapidly than they have grown in the past. By 2030, there will be 71 million Americans age 65 and older, up from 41 million this year.

All of this building budgetary pressure is now a clear drag on growth and a hindrance to hiring. Firms are worried that the “solution” politicians will ultimately pursue to close the widening gap between federal revenues and spending is more debilitating tax increases. The latest long-run budget forecast from the Congressional Budget Office won’t allay those fears.

In that report, CBO found that a massive tax hike is already in the offing. Historically, federal taxes have hovered at around 18 to 19% of GDP. CBO expects that number to rise to 23% of GDP by 2035, even if nothing is done to change current law. Income taxes will begin to rise automatically next year if Congress lets tax rates revert to their pre-Bush levels. In addition, the cuts to rates on dividends and other investment earnings from 2003 — cuts that were which instrumental to igniting growth during the post-9/11 slump — would also vanish.

President Obama has already pushed through Congress one of the largest tax increases on record as part of his health care plan. The Medicare payroll tax is set to rise by 0.9% of payroll for individuals with incomes above $200,000 per year and couples with incomes exceeding $250,000. In addition, these same households will now pay an additional 3.8% tax on “unearned” income, such as dividends, rent, and other investment income. The income thresholds for assessing these taxes are not indexed at all. Further, the new 40% excise tax on the premiums of so-called “high cost” insurance plans kicks in 2018, and then begins to hit more and more people as the threshold for determining what constitutes a “high cost” plan grows with general consumer inflation and not health costs. Carter-era bracket creep has now been restored in a big way in the age of Obama.

All told, CBO expects these and other tax hikes in the health bill to raise ever-increasing amounts of revenue, reaching 0.5% of GDP in 2020 and 1.2% in 2035.

The president’s governing and budget strategy should now be evident to one and all. He has spent his first two years in office working to secure expansions in the scope and power of the federal government. Working with very sizeable Democratic majorities in both the House and the Senate, he passed an $800 billion-plus “stimulus” program, a massive health care entitlement covering tens of millions of new beneficiaries, a full federal takeover of the student loan industry, and sweeping new regulations for the financial sector. All of these initiatives have increased federal power and spending and have been financed with new tax and regulatory burdens on the private sector of the American economy. And all were passed entirely on partisan lines, or with just token Republican support.

Now that a vastly expanded federal enterprise has been “locked in,” or so the Democrats now hope, the president and his team are looking to “pivot” and spend the coming period in the run-up to 2012 as would-be defenders of the U.S. treasury. The president is now pledging to attack runaway budget deficits starting with consideration of the recommendations of a presidentially-appointed debt commission, set to report — conveniently — just after the mid-term election. And he wants Republicans on the commission and in Congress to give him cover for the tax increases he is sure to seek to pay for the bloated government he has erected.

Republicans would be fools to go along with this game plan. If the president wants bipartisan cooperation in governing, then that cooperation should extend to the scope and expanse of the federal government, not just how to pay for it. That means health care policy, and financial services, and student loans, and everything else in between. But that’s not what the president has in mind. He has spent his first two years in office building a government of the Democrats’ dreams. He and his fellow Democrats in Congress should now explain how they plan to pay for it.

[Cross-posted at e21 here]

posted by James C. Capretta | 3:04 pm
Tags: Peter Orszag, CBO, federal spending, economic forecasts, deficit commission
File As: Health Care

The Cowardice of His Convictions

July 8, 2010

The reason the health-care debate has been so polarizing is that there is a deep and fundamental divide over what should be done to fix the problems in American health care, especially with regard to rapidly rising costs.

On one side of the debate are those who advocate a decentralized, market-based reform program. Congressman Paul Ryan is among the leaders pushing for such a consumer-driven solution.

On the other side are what you might call the “governmentalists.” The governmentalists believe the way to “bend the cost-curve” is with a centralized, government-led effort to micromanage the entire $2.6 trillion health sector from Washington, D.C.

President Obama, his top aides, and his allies in Congress are all quite clearly health-care governmentalists. The evidence for this is on full display in the bill they jammed through the legislative process. It is filled to the brim with provisions that shift power and authority away from states, individuals, employers, and the private sector to the federal government.

The federal government is now the nationwide regulator of all private health insurance. Federal bureaucrats can pick and choose which insurers are allowed to sell to customers in government-managed “markets.” The federal government will determine what health benefits every citizen and legal resident must secure to avoid paying a punitive tax. The federal government will also decide the appropriate level of cost-sharing for government-certified insurance products.

The new law is also filled with provisions which the sponsors contend will slow cost growth with “delivery-system reform.” The federal government has been put in the driver’s seat of a sprawling effort to force doctors and hospitals to quite literally change how they care for patients and conform to the federal government’s view of what constitutes cost-effective medical practice. Medicare’s administrators will be using new authority to reward those who toe the government’s line and hit budget targets, and punish those who don’t. Government reimbursement will be used to prevent the introduction of medical technologies considered excessively costly.

Although President Obama is quite clearly a committed and enthusiastic health-care governmentalist, he has never admitted as much in public, nor is he ever likely to. He avoids engaging in direct debate over the merits of his position with the market-based reformers. Instead, he argues, as he did at the so-called “bipartisan summit” back in February, that there is no great disagreement over substance; it’s just that those dastardly Republicans are against progress on his watch.

In a way, it’s hard to blame him for ducking the fight. The entire governmentalist reform program is based on the assumption that the federal government has the capacity to nimbly manage the health sector and to cut out unnecessary spending without harming the quality of care. Let’s just say that’s a hard sell with most of the public. The federal government has been running public-insurance programs for almost half a century. The only way it has ever cut costs is with arbitrary, across-the-board price setting. These price controls cut reimbursement rates for all providers of services, without regard to what it will mean for patient care. That’s the norm in government-run systems around the world as well. And the end result is not more efficient health care. Artificial, government-set cost limits simply drive out willing suppliers of services, and eventually lead to access problems, queues, and government-driven rationing of care.

Truth be told, this is a debate President Obama has always known he couldn’t win, and so he never wanted to engage in it.

Which brings us to the administration’s recess appointment of Dr. Donald Berwick as administrator of the Centers for Medicare and Medicaid Services (CMS).

Unlike the president, Dr. Berwick hasn’t hid his worldview.

The White House says Republicans were planning to obstruct the nomination. Republicans haven’t obstructed anything. All they did was signal an eagerness to engage in a spirited debate over Dr. Berwick’s vision for health-care cost control. The reason Dr. Berwick’s nomination hasn’t moved forward is because he hasn’t yet submitted responses to relatively routine questions posed by the Senate Finance Committee — questions that would have been asked of any nominee, from either party, given the same set of facts and circumstances.

Some have speculated that the White House chose to make the recess appointment because the answers to some of those questions might cause some problems for the nomination or the administration. Perhaps. But it seems more likely that the primary motivation for the recess appointment was to avoid a clear and transparent fight over the merits of the competing visions of health care reform. Dr. Berwick is an unvarnished governmentalist of the first order. The debate over his nomination would have been the perfect opportunity to present clearly to the public the consequences of handing over so much power in the health sector to the federal government.

The decision to bypass a confirmation fight may have avoided some short-term pain for the administration. But the long-term problem remains. The president jammed his health-care bill through Congress without a full debate and public consent. Voters don’t want the federal government put in charge of cost control, and yet that’s exactly what the new law will do. In time, that fact will become obvious to everyone. At which point, those who sponsored and passed this new reality into law will be held accountable for what they have done.

posted by James C. Capretta | 9:53 am
Tags: Donald Berwick, governmentalism, Centers for Medicare and Medicaid Services, cost control
File As: Health Care

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