Does PPACA Cut Medicare FFS Spending or Not?

by Reihan Salam

Chris Van Hollen, a prominent House Democrat, suggests that PPACA does not really cut Medicare FFS. John McCormack of the Weekly Standard has a great post clarifying matters:


“Obiously there’s been a lot of misinformation,” Van Hollen said, “on what exactly happened with respect to Medicare financing” in the national health care law. Van Hollen said that the Obamacare’s Medicare cuts are “primarily changes in the Medicare Advantage plan.”

“It’s important to understand that the Medicare Advantage plan was subsidized with about 114 percent of the regular Medicare fee-for-service plan,” said Van Hollen. “And as a result, not only were taxpayers giving an additional subsidy to these health insurance companies … but other folks in the fee for service Medicare were actually subsidizing these other plans.”

There are a lot of problems with Van Hollen’s argument. First, Medicare Advantage is popular with the 10 million seniors who choose it, and some insurance companies are already dropping their Medicare Advantage plans because of Obamacare.

Second, the Medicare cuts in Obamacare are not “primarily” cuts to Medicare Advantage. Only $136 billion of the more than $500 billion in Medicare “savings” by 2019 come from cutting Medicare Advantage. Most of the cuts are to hospital and doctor reimbursement rates. 

Many left-of-center wonks have placed heavy emphasis on the seriousness of the Medicare FFS cuts, contrasting this against the unseriousness of various Republican alternatives. Chris Van Hollen is not a wonk. He is a politician. And his tack is to condemn serious Republican alternatives, like the Ryan Roadmap, as draconian. Politics! 

McCormack’s post goes on to contrast arguments made by Governor Mitch Daniels and Rep. Paul Ryan:


Some conservatives like Indiana governor Mitch Daniels have scolded fellow Republicans for playing the “granny card” against the Democrats who voted for Obamacare and its Medicare cuts.  ”I do not think it was a proud moment for the Republican Party at all,” Daniels said in June. “Medicare is going to have to change. I have to say, the granny card has been played so cynically against Republicans so many times, that I can certainly understand the turnabout there. But it is not a grownup attitude.”

This is a fair assessment. I’d go further and argue that the problem with the Medicare FFS cuts is that they’re unlikely to stick. This is an argument that infuriates many proponents of PPACA. But here’s the thing: without reforms that will actually make Medicare more cost-effective, like a competitive pricing system that offers a real-world benchmark for FFS, there is nothing to prevent a new round of “doc fixes.”

But Ryan takes a different approach. When Democrats attack him for wanting to “privatize” Medicare, he counterpunches that Democrats are the ones who have slashed the program for current beneficiaries and want to impose a “rationing system“; he simply wants a free-market reform for those under 55.

“What I’m proposing is, make sure that we don’t cut benefits to people in and near retirement, 55 and above,” Ryan said during a debate on CNN last month with Democratic congresswoman Debbie Wasserman-Schultz. ”They just took $522 billion out of the Medicare fund to spend it on another government program. They are the ones who raided Medicare.”

This strikes me as a plausible argument, but I agree with Gov. Daniels that we also need to take action to reduce the cost of covering people in and near retirement. 

The Agenda

NRO’s domestic-policy blog, by Reihan Salam.