Medicare Advantage

The Candidates' Positions on Medicare Advantage

I have a post at The Hill’s Congress blog explaining what the Obama administration’s cuts to Medicare Advantage will mean for seniors, and why Governor Romney’s proposal will build on the success of Medicare Advantage rather than undermine it.  

The president targeted Medicare Advantage for big cuts in the 2010 health care law to partially pay for the large entitlement spending also provided in the law. Over the next ten years, these cuts will reach $308 billion, according to the Congressional Budget Office. That these cuts will affect Medicare beneficiaries is indisputable. According to the most recent Medicare Trustees’ Report, enrollment in Medicare Advantage will peak in 2013 at 13.7 million people and then fall to 9.7 million in 2017. Four million seniors will thus get pushed out of the Medicare Advantage plan they prefer as a direct consequence of the Obamacare cuts.

You can read the rest of the post here.

posted by James C. Capretta | 12:50 pm
Tags: Medicare Advantage, 2012 election
File As: Health Care

Building Upon Medicare Advantage

This morning, I testified before the House Committee on Ways and Means on the subject of the Medicare Advantage program. As I explained in my testimony, the Medicare Advantage program allows for innovations and flexibility that greatly improve on the delivery of benefits under Medicare’s traditional "fee-for-service" payment structures. My written testimony is available here, and you can see video of my testimony, courtesy of C-SPAN, by clicking here or clicking play below.

posted by James C. Capretta | 2:48 pm
Tags: Medicare Advantage, testimony, Ways and Means
File As: Health Care

Obamacare Hurts Seniors

I have an article up at National Review Online debunking the claim, based on a report released by Fidelity Investments, that Obamacare will reduce health care costs for seniors:

For starters, as the Fidelity announcement indicates, the analysis conducted by the company is based only on seniors enrolled in the traditional fee-for-service Medicare program. That means it excludes seniors enrolled in the private-plan option available in Medicare, known as Medicare Advantage. Today, about 25 percent of Medicare beneficiaries are enrolled in Medicare Advantage plans. Excluding them from the analysis significantly distorts the findings.

In a report I prepared with Robert Book for the Heritage Foundation, we found that Obamacare will cut Medicare Advantage payment rates by an average of $3,700 per beneficiary in 2017, or 27 percent below the payment rates that would have been made without Obamacare. These cuts will translate directly into higher health-care costs for seniors. Seniors who remain in Medicare Advantage will face higher costs, because the cuts will force the plans to cut back on the benefits they offer and to charge higher cost-sharing for the services they do cover. Further, seniors who will be pushed out of Medicare Advantage and back into the traditional program will lose entirely the added benefits provided by most Medicare Advantage plans. None of this is captured in Fidelity’s analysis.

You can read the rest of the article here, and find the Fidelity study online here.

posted by James C. Capretta | 11:00 am
Tags: Obamacare, Medicare Advantage
File As: Health Care

Democratic Delusions

As Charles Krauthammer and David Brooks have already noted, this campaign season has been marked by an unusual degree of Democratic self-delusion. Everything is to be blamed for the current plight of the party except its elected leaders and the policies they have pursued while in office. Thus, the reason Democrats are headed for an electoral drubbing is that secret corporate money has distorted our democratic processes. Or if not that then because voters can no longer hear the truth through all the misleading clutter spouted by right-leaning media. Or perhaps because the electorate is just too dim to realize how important and positive the Democratic agenda has been for them and the country.

The self-delusion seems particularly acute when the conversation turns to health care. Democrats and their media apologists just can’t bring themselves to believe that there is anything substantive behind opposition to Obamacare. And so, instead of engaging in serious argument, they offer up condescending nonsense — such as this New York Times editorial which supposedly debunks the myths being peddled on the campaign trail by candidates trying to stir up opposition to Obamacare.

But the Times editorial doesn’t come close to debunking anything — because all it does is address distorted caricatures of arguments made by Obamacare’s opponents rather than the real ones that have convinced most Americans that Obamacare is a colossal mistake.

The Times piece begins by calling “pure nonsense” the suggestion by Senate candidate John Raese that Obamacare will force some patients to go through a bureaucrat or a panel to reach a doctor. And, of course, it’s true that the new law does not have an explicit provision which puts a bureaucrat in charge of physician access for all Americans.

But Obamacare does create the Independent Payment Advisory Board, or IPAB, which has the potential to become a very powerful hurdle to certain types of care. Under the new law, the fifteen-member IPAB has the authority to implement cost-cutting mechanisms in Medicare without further congressional approval. Indeed, IPAB’s proponents have been quite explicit in their hope that the panel will use government-funded “comparative effectiveness research” as the basis to terminate Medicare reimbursement for items and services deemed not “cost effective” by budget cutters. So, here we have an unelected board of so-called experts with the authority to unilaterally decide that certain treatments should not be funded by Medicare. Only the most blinded enthusiasts of governmental activism don’t see the potential problems with this approach, or understand the legitimate fears that it creates in the electorate.

The Times then suggests that Republican attacks on Obamacare’s $500 billion in Medicare cuts are cynical and misleading because the cuts will only come out of providers’ income or from Medicare Advantage enrollees who are unfairly profiting from excessive reimbursement rates. But Medicare’s chief actuary — who works for the president of the United States — has stated repeatedly that these cuts are so deep and arbitrary that they will force many hospitals and other institutions to stop seeing Medicare patients. In fact, the cuts in Obamacare would drive Medicare’s payment rates for services below those of Medicaid by 2019, and Medicaid’s network of willing suppliers of care and services is already very constrained. It’s quite clear that pushing Medicare’s rates to such low levels would drastically reduce access to care for many beneficiaries.

Moreover, the Medicare Advantage cuts will fall disproportionately on low-income and minority seniors who don’t have access to a retiree wraparound plan and can’t afford Medigap coverage. For them, the lower cost-sharing offered by Medicare Advantage plans is instrumental in helping them afford the care they need.

Of course, the Times editorial doesn’t even address the main reason voters are so upset that Obamacare was jammed through Congress. The public knows and understands that federal finances are on the brink of meltdown. The federal government is running trillion-dollar deficits as far as the eye can see, and there is no serious plan to get things under control. And, in fact, the signature initiative of the Obama administration was to pile another massive entitlement on top of the unaffordable ones already on the books, and partially pay for it with a $700 billion tax increase when unemployment is already running near 10 percent. The voters see all of this, and understand it perfectly well. What we have here is a Democratic president and a Democratic Congress that could not help themselves. They saw an opportunity to enact what liberals have been dreaming of for decades, and they decided it was more important to lock that in than to work with Republicans on reviving the economy.

And for that misplacement of priorities the voters will be holding them accountable next week.

posted by James C. Capretta | 6:13 pm
Tags: Medicare Advantage, chief actuary, Independent Payment Advisory Board, John Raese
File As: Health Care

The Anatomy of a Hostile Government Takeover

During the long national debate over the future of American health care, President Obama frequently chastised his opponents for launching exaggerated attacks on his plan for “reform.” He took particular exception to the criticism that the changes he was pushing amounted to a government takeover of the whole health sector. He knew full well that this kind of criticism might derail the entire effort in Congress, because most Americans recoil at the thought of a distant and bureaucratic federal government running the health-care system for everyone. So Obama vigorously denied that his program would lead to any such thing. In his August 8, 2009 radio address, he described the “takeover” accusation as “outlandish” and characterized his approach as a mainstream and moderate attempt simply to reform the nation’s private health-insurance system.

It’s now been six months since Congress passed Obamacare — not a long time given the sweeping nature of the legislation and the long phase-in schedule for its most significant provisions. Even so, it is already abundantly clear that Obamacare’s critics were dead right: The new health law has set in motion a government takeover of American health care, and a very hostile one at that. The Obama administration’s clumsy and overbearing behavior since its passage proves the point.

First, there are the heavy-handed statements coming out of the Department of Health and Human Services (HHS). Two weeks ago, HHS secretary Kathleen Sebelius sent a letter to the nation’s insurers with a plainly stated threat: Either the insurers conform to the political agenda of the administration and describe the reasons for premium increases in terms acceptable to the Democratic party, or they will be shut out entirely from the government-managed insurance marketplace. What could possibly have provoked a cabinet secretary to launch such an indiscriminate broadside against an entire industry? Simple: A handful of insurers had dared to utter the truth, noting that the new law has imposed costly insurance mandates that will raise premiums for everyone. For that offense, the federal government has essentially threatened to put the truth-telling insurers out of business. And what’s truly astonishing, and telling, is that the new law almost certainly gives the HHS secretary the power to do so if she really wants to.

Then there is the matter of Dr. Donald Berwick. Recall that President Obama took more than a year to settle on Dr. Berwick as his nominee to head the Centers for Medicare and Medicaid Services (CMS) — and then moved in a matter of weeks to put him in place without Senate confirmation. The president tried to blame Republicans for this blatant end-run around constitutional checks and balances, even though Democrats control the Senate and could have held a hearing and a vote if they had wanted to. The truth is that Democrats didn’t want Dr. Berwick to be confirmed in the Senate. They wanted him on the job, for sure, because he is an ardent government-takeover enthusiast, and is prepared to use all of the levers at his disposal to advance that objective. The president and his Democratic allies just wanted to get Dr. Berwick in place without the public’s really noticing. So they chose to circumvent the normal process and put him in the CMS position with a time-limited recess appointment. For the next year and a half, Dr. Berwick is free to use CMS’s enormous new powers to force doctors and hospitals to conform to his vision of effective health care, and he is essentially accountable to no one but the president.

To distract the public from these power plays, the administration decided to launch a series of “information” campaigns that are plainly political and filled with all manner of distortions. HHS sent a letter to the nation’s Medicare beneficiaries supposedly explaining what the new law will mean for them. Somehow, it failed to mention that the law will cut Medicare by half a trillion dollars over a decade, and cut the value of Medicare Advantage by an average of 27 percent by 2017. HHS followed this up by putting the same distortions on television, in the form of an expensive advertising campaign featuring Andy Griffith.

In the meantime, busy beavers in various corners of the federal bureaucracy are laying plans for new fiefdoms. Thousands of new employees are planned for various offices in HHS, including the new office to regulate private health insurance nationwide. The IRS is gearing up both to enforce with tax penalties the requirement that everyone carry government-approved insurance, and to help administer the massive new entitlement program that will require income verification on tens of millions of applicants. States will also be forced to build new bureaucracies to carry out the scores of tasks the federal government will be ordering them to perform.

Massive bureaucracy. Disinformation campaigns. Blatant power plays. The politicization of decisions that should be made with a focus on patient care. The use of government power to threaten citizens and their livelihood.

This is what Obamacare has brought us. And that’s just in its first six months.

[Cross-posted at NRO here.]

posted by James C. Capretta | 11:48 am
Tags: Kathleen Sebelius, Donald Berwick, Andy Griffith, Medicare Advantage
File As: Health Care

The Assault on Medicare Advantage

The Obama administration has been trying since March to convince America’s seniors that the new health care law will be good for them. The Department of Health and Human Services has distributed a mailer to all Medicare beneficiaries touting the supposed benefits of the new law for the retired and disabled. Similarly, HHS also launched a television advertising campaign featuring Andy Griffith, apparently hoping that delivering the same message in a soothing, Mayberry-esque accent might hoodwink some viewers into believing the sales pitch.

It’s not working. Senior citizens remain as opposed as ever to the health care law — and for good reason. The new law will impose steep cuts in Medicare to pay for another federal entitlement expansion. And the Medicare cuts are of the kind that leave seniors with no way out. The cuts will reduce their choices, impair their access to care, and increase their costs.

The law’s cuts in Medicare Advantage payments will be particularly burdensome for Medicare beneficiaries, as Robert Book and I document in a new study released this week by the Heritage Foundation. (We presented our findings at a public event on Tuesday sponsored by, of which I am project director.)

Medicare Advantage (MA) is the private insurance option in Medicare. Beneficiaries can voluntarily elect to get their Medicare coverage through MA plans, and, when they do so, the MA plans get paid a fixed monthly amount by the program to provide at least Medicare-covered benefits for their enrollees. Most MA plans provide additional benefits and lower cost-sharing than provided by the traditional Medicare program. Today, about 10 million Medicare beneficiaries have opted to get their Medicare benefits through MA plans.

The cuts in MA begin right away, with payment rates frozen in 2011 at their 2010 levels. But that’s just the beginning of it. Between 2012 and 2017, the law phases in a new formula for setting maximum MA payments by region, which will dramatically lower MA payments in every region of the country. The new law also makes large cuts to the payment rates for hospitals and other medical providers in the government-managed fee-for-service Medicare program, and a portion of these cuts automatically gets passed through to MA plans as well in the form of even lower maximum rates.

Facing these steep cuts, MA plans will have no choice but to make adjustments in their coverage, raise their premiums, increase their deductibles and co-payments, and eliminate some benefits. Some plans will exit markets entirely, leaving Medicare beneficiaries with far fewer options. Before Obamacare, the chief actuary for Medicare expected MA enrollment to increase to about 14.8 million in 2017. Now, however, he expects MA enrollment to fall to just 7.4 million in 2017, or 50 percent below what it would have been without the cuts.

On a dollar basis, the average nationwide per-capita cut will total about $3,700 annually by 2017 (nearly 27 percent), from the combined effect of the MA formula changes and the pass-through of cuts in traditional Medicare. We estimate the aggregate MA cut will total $55 billion annually by 2017.

The level of MA reduction differs substantially by region — but no region is spared. Among counties with at least 100,000 people, the smallest cut is 15 percent (in Tuscaloosa, Alabama) and the largest is 45 percent (in Ascension, Louisiana). At the state level, the average MA cuts range from a low of $2,020 (or 21 percent) in Nevada to a high of $4,693 (or 36 percent) in Hawaii. A detailed, county-by-county analysis of the impact of the MA cuts is available here. (In the near future, we intend to organize the data by congressional districts.)

The deep reductions in MA payment rates and services covered will hit low-income seniors disproportionately hard. Many retirees who have worked for large employers or state and local governments have access to retiree wraparound plans that cover what Medicare does not. Other retirees with sufficient income can buy Medigap coverage. But lower income seniors do not have such options. For them, Medicare Advantage has offered better coverage and lower out-of-pocket costs than traditional Medicare — and without the expense of another premium payment. Consequently, these lower-income seniors are much more likely than higher-income beneficiaries to sign up with an MA plan, and the cuts will hit them especially hard. We estimate that a full 70 percent, or $38.5 billion, of the MA reductions will fall on seniors with incomes below $32,400 annually (in today’s dollars).

The president has promised repeatedly that the health care plan he pushed through Congress would not force people out of the plans they like today. But that is demonstrably not true for Medicare Advantage enrollees. The new law will force millions of seniors out of the private plans they prefer and back into the government-managed program, where they will get less coverage and face higher costs. In the process, these beneficiaries will lose billions of dollars in the value of what Medicare provides for them.

That’s not the kind of change they can believe in.

posted by James C. Capretta | 5:59 pm
Tags: Medicare Advantage, Robert Book
File As: Health Care

The cuts to Medicare Advantage under Obamacare

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

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 Shameless Medicare Propaganda Continues

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 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

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