Fixing Medicare Using Obamacare Funds

by Douglas Holtz-Eakin

On Tuesday, the Senate reached a deal on a one-year extension of the “doc fix” in order to prevent a 23 percent reduction in Medicare reimbursement levels, which is scheduled to take effect on January 1, 2011. Fixing the sustainable growth rate (SGR) at the last minute is not new, but taking funds from the Affordable Care Act (ACA) to pay for the extension sets an important precedent.

The proposed one-year extension of the “doc fix” provides a zero percent update in the physician-reimbursement levels for calendar year 2011, and is “paid for” by increasing recapture payment thresholds for health-insurance subsides created under the health-care law. But this is a tiny aspect of the dollars in the ACA that should be targeted to other priorities. Additional funding for a long-term SGR fix is available in the ACA if Congress delays the Medicaid program expansion and the health-insurance-exchange subsidies. Delaying the Medicaid program expansion by two years would save $118 billion , $275 billion if delayed by three years. Delaying the health-insurance-exchange subsidies by two years would save the federal government an additional $50 billion, $72 billion if delayed by three years.

The new Congress should focus immediately on securing Medicare’s future, something the Obama administration and Congress failed to do when the ACA diverted $332 billion in Medicare cuts toward new entitlement programs. While the ACA flunks the test of real health-care reform, it may be able to fund it through an already allocated budget. Real reform would: encourage providers to offer higher-quality care at lower costs; reduce the cost pressures that underlie the bankrupt Medicare and Medicaid entitlements; and give every American access to more options for quality insurance. The precedent has now been set; the next Congress should and can bring the country closer to real health reform by defunding ACA programs to pay for replacement legislation.