Thomas Saving and John Goodman have a good piece in the Wall Street Journal explaining very clearly where the projected savings in the president’s health-care law are coming from. If the law is implemented as written, spending per enrollee will be slashed dramatically:
Consider people reaching the age of 65 this year. Under the new law, the average amount spent on these enrollees over the remainder of their lives will fall by about $36,000 at today’s prices. That sum of money is equivalent to about three years of benefits. For 55-year-olds, the spending decrease is about $62,000—or the equivalent of six years of benefits. For 45-year-olds, the loss is more than $105,000, or nine years of benefits.
A big share of the long-term reduction in spending is coming from a 29.4 percent cut in fees for doctors who treat Medicare patients on Jan. 1, 2012. Of course, I have mentioned before that no one believes this reduction will take place, not even Medicare’s chief actuary, who writes that “the financial projections shown in this report for Medicare do not represent a reasonable expectation for actual program operations in either the short range (as a result of the unsustainable reductions in physician payment rates) or the long range (because of the strong likelihood that the statutory reductions in price updates for most categories of Medicare provider services will not be viable).”
Besides, why should we believe that these fees will be cut? The implementation of that part of the law has already been postponed several times since it was passed. We shouldn’t believe it, argues economist Bruce Bartlett, unless this cut is part of a deal on the debt ceiling. He writes:
But what if President Obama and House Speaker John Boehner agreed, as part of negotiations on raising the debt limit, to let the this cut in Medicare fees take effect as current law requires? That would cut Medicare’s costs very substantially over current policy — something Mr. Boehner has demanded as a price to prevent the Treasury from defaulting on the debt.
The virtue of this approach is that no one has to do anything — the sustainable growth rate is already in law. All our leaders have to do is promise not to change the law and instead allow it to take effect on schedule.
The doctors will scream bloody murder and threaten to stop treating Medicare patients. It will be ugly.
But everyone knows that Medicare needs to be cut, and as the biggest contributor to long-run deficits, doing something meaningful to reduce spending on this program will demonstrate resolve and commitment to deal with entitlement spending.
Leaving the politics of this solution aside, even if we could implement the cuts, it doesn’t seem like a desirable solution. I assume that, under the current system, doctors are charging higher fees for services than they would if their patients were paying with their own money. Bartlett is right to say that allowing these cuts in doctors’ fees to be implemented would reduce Medicare spending, and he is correct to say that doctors will be very upset. But I don’t think he’s correct to conclude that once doctors understand that reimbursements for their fees aren’t going back up — no matter how much they lobby and scream about the unfairness of it all — they will accept the deal and try to look for ways to deliver these services for a significantly reduced price.
That’s because, as Tyler Cowen often reminds us, unless you can repeal the laws of economics, the supply curve slopes upward. This means that when you keep the price of things artificially low, you get shortages. In this case, doctors will likely stop serving Medicare patients or at least reduce the number of Medicare patients they see; if they are forced to see Medicare patients, these seniors will receive lower quality care. Call it immoral or what you will, this is the way it works. Think about it: If your boss comes and tells you that from now on your salary will be cut by 30 percent, would you keep on working as much as you did before? I doubt it.
Now, ultimately, if we implement these cuts, spending will be reduced but at the expense of lower-income seniors who don’t have many options other than to put up with the system. Is that really the plan?
And remember, even if the law is implemented as planned, Medicare spending is still exploding in the near future and the program still isn’t solvent.
For more evidence of the long-term unsustainability of the program due to goofy budget assumptions in the Affordable Care Act, read Peter Suderman’s piece this morning about the the CLASS (Community Living Assistance Service and Supports) Act.
"I assume that, under the current system, doctors are charging higher fees for services than they would if their patients were paying with their own money."
If you're assuming that Doctors are overcharging, then why do you assume that when their reimbursements are cut, they'll stop providing services at all? Are they all going to "Go Galt" on their patients because they can't continue to get overinflated payments? Please.
"Think about it: If your boss comes and tells you that from now on your salary will be cut by 30 percent, would you keep on working as much as you did before? I doubt it."
Conservatives tell teachers and union members to work for less all the time. When they say they'll work less, conservatives scream bloody murder. But now we're told that even doctors have the same worldview?
Reply to this commentLinkReport AbusePhysicians are VERY highly paid, on average, and their total compensation has increased rapidly during the last 10 years. Of course they resist any steps that might reduce their compensation. But they certainly don't treat Medicare patients at a loss! Even at Medicare rates, physicians can earn a very healthy income -- just less than what they've been used to.
Reduced growth, or even outright decreases, in Medicare compensation will be met with great resistance, of course. There's no clear reason to believe, however, that a modest reduction in overall compensation for physicians would somehow reduce the quality of care.
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Reply to this commentLinkReport AbuseAnother way that physician's pay is kept high: by restricting the supply of doctors through the scarcity of residency positions.
Reply to this commentLinkReport AbuseI have to agree with the posters below - why are Doctors some sort of protected class? Do people honestly believe that they are immune to the realities of our financial situation, and deserve to get paid very high amounts forever, with no review at all?
Reply to this commentLinkReport AbuseSome doctors are raping the system with unnecessary surgeries and treatments. Other's not so much.
Hopefully primary car doctors will walk away in droves from medicare leaving those greedy seniors high and dry. Then the repubs can say "hey, I didn't vote for it!".
Reply to this commentLinkReport AbuseTeacher pay and doctor pay are different sorts of issues. Teacher pay is distorted because of the outsized influence of teacher unions.
Doctor pay (along with general healthcare costs) is distorted in part because consumers rarely pay directly for their own health care, which obscures the price (also because programs like Medicare jack up the demand for healthcare without increasing the supply). The Doc Fix to Medicare by itself won't change this, because there is a large pool of patients not on Medicare that healthcare providers can continue to charge at distorted rates. That's why the Saving & Goodman article cites general healthcare reform as a necessary step to effective Medicare reform.
It's not that doctors are more special than teachers or other professionals: It's that the problems of expensive education and expensive healthcare are very different sorts of problems.
Reply to this commentLinkReport AbuseIt costs a lot more to go through premed and then med school than to a teacher's college. Also, teachers don't have to pay for exorbitant malpractice insurance. (Hey, there is a thought. Teachers being sued for malpractice.)
Reply to this commentLinkReport AbuseDoctors could be forced to accept Medicare patients as a condition for maintaining a license to practice.
Of course they'll scream bloody murder. But the threat that they'll abandon medicine and do something else is mostly idle. Because what else would they do when the American workforce model is collapsing due to outsourcing and automation?
Oh yeah, they could always sign up for the military. Plenty of jobs there. Since we'll always have money to fund Wars to Nowhere out the wazoo. (Another $119 BILLION scheduled to be tossed down the rate holes of Iraq and Afghanistan in 2012.)
P.S. And nitwits like Allen West want to shovel even more depreciating American Green into the insatiable, voracious maw of the Military-Security complex.
Reply to this commentLinkReport AbuseCurrent doctors will not leave, but I know a lot of people who are younger that would choose not to go to medical school and instead go to law school or business school and on the margins that will drive down supply and create a shortage beyond the current cartel shortages described below.
Reply to this commentLinkReport Abuseinspire25,
There's nowhere to hide. Law is being crushed:
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With business school also a FAIL.
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Science PhD? Well no:
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Reply to this commentLinkReport AbuseI looked at the compensation numbers of American physicians quoted by the posters, mostly around 200k, with some specialists reaching 1/2 million. These are certainly higher than the average American professional workers ( except those in senior management and executive positions ). But I don't see these numbers as excessive, in view of the talents, education, and legal and health hazards that their medical careers expose them to.
How many students would be willing to study to become physcians and how many of them may still be willing to stay in their trade if they are paid not more than 100K ? Are we willing to put up with the long waiting times due to the reduced supply of doctors ?
Reply to this commentLinkReport AbuseRegarding the comparison that John Q. makes between teachers and doctors.
Here in the Wisconsin the average public school teacher makes 10K more per year than their private school counter-part AND that's AFTER adjusting for level of education, experience, etc. That also doesn't include the vastly improved benefits package that public teachers get over their private school peers. So don't try to peddle the line that teachers are underpaid around here.
As for doctors. In most cases the doctor is NOT a public employee. He or she should be able to charge whatever he or she can get. Doctors are highly skilled people who have years of study in demanding fields or biology, chemistry, anatomy, etc. etc. People who can be doctors can also do just about anything else and they WILL, if you try to cut their compensation. And no, you can't easily replace those lost doctors.
Replacing lost teachers? Well, you know the old saw, "those who can't do ..."
Reply to this commentLinkReport AbuseSteveM: Should the govt have the power to set the wages for everyone, or just those you think are making too much money?
Reply to this commentLinkReport AbuseMark, I have nothing against doctors making a decent buck. I'm just pointing out a logical tactic that the government may employ to enforce treatment of Medicare patients.
About the training doctors invest in, it is substantial. But the America professional business model is imploding.
This guy:
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is a Medicinal Chemist. Read some comments about the PhD's looking to jump ship. And they also spent 4 years in grad school and then 2 or 3 years as low paid post docs. Most could have become physicians if they wanted to. But they are getting hammered by Big Pharma insourcing H1-B Asians and outsourcing directly to Asia.
Again doctors will leave medicine to do what? Become scientists in a barren job market? Reimbursement cram downs have to be a given, because the patient base is going to be poorer.
America is hollowing itself out except for its Leviathan Military, the Banksters on Wall Street and the Reptile Politicos in DC. Those guys will make sure they go down last.
Reply to this commentLinkReport AbuseThe compensation for a doctor's services under Medicare can actually be quite low - low enough that it may not even cover the doctor's overhead costs. It's not uncommon for a doctor to lose money when they treat a Medicare patient.
There are ways of "gaming" the system, of course. For example, payment for lab services and x-rays are much better, so doctors sometimes bring those services in-house to make up for lower compensation. (They may also order more tests.)
Still, Medicare paid doctors on average 78% of what private insurers paid in 2008. A rising percentage of doctors already don't accept new Medicare patients and/or restrict the number that they see in their practice. Cutting their payments further seems likely to only reduce the number of doctors available to Medicare patients.
Reply to this commentLinkReport AbuseI am a greedy doctor and here is the reality....Medicare fees are set to basically present a break even business. Drop fees 30% and seniors can pound sand.
Moreover, there is a huge overhang of aging productive male physicians who deferred retirement through our 11 year stock market doldrums. Drop Medicare reimbursement and they do suddently go Galt.
What is the solution? Put the patchwork charity system of VA, county, city and state hospitals into one Federal system. Hire the doctors on salary and provide Medicare through it. It will be cheap and universally available.
Reply to this commentLinkReport AbuseLooks like none of the trolls here know any physicians socially or professionally (although I really hope they open their next appointment with "You greedy overcharging [noun of your choice]! It's criminal you make more money than high-school dropouts!", docs love that). Private practices are already refusing new Medicare patients.
Reply to this commentLinkReport AbuseJohnQ: I would LOVE it if huge masses of teachers said "Hell no, we won't go", quit the government schools, and went and looked for other jobs.
The problem is, of course, they don't do that and I am forced at the point of government guns to go on paying their salaries anyway.
If you think doctors are too expensive you're free not to pay them. I finally did that last time my tooth needed a bridge - had it done in India for 1/10th the price.
And DEATH to the Dish Captcha.
Reply to this commentLinkReport Abuse"Doctors could be forced to accept Medicare patients as a condition for maintaining a license to practice."
Can't wait to see a doctor under those circumstances.
Reply to this commentLinkReport AbuseWith respect to whether doctors believe they're a protected class - well, while there certainly are a fair number of physicians with a strong sense of entitlement, it's not a matter of whether physicians are going to go on strike and march in the streets - they're not.
What is *not* an "idle threat", despite what one poster said, is the threat to stop seeing Medicare patients. Not only is that threat not idle, it's already being carried out at the primary care level. Tried to get a new appointment with a primary care doc with Medicare as your primary insurance lately? The response at the specialist level has been different - lots of docs selling their practice to hospitals - but the idea that Medicare fee insecurity (it's less the low amounts and more the absurd unpredictability and annoyance of dealing with CMS) doesn't affect access is just goofy. An increasing number of physicians even now would see an *increase* in their take-home if they fired two thirds of their billing staff and dismissed all the CMS patients from their practice. Now, will there be a total lack of access? No, of course not. What'll happen is you'll get an appointment six weeks from now, at an unspecified time, to wait in a waiting room with eighty other patients, to be seen when they get to you.
And AndyS? Where in the world did you get the idea that physician incomes have been increasing rapidly over the last ten years? That's just nuts.
Finally, it's absolutely true that the network of county/state/VA hospitals could be leveraged to provide a hell of a lot of care at relatively low cost and marginally acceptable quality in a clinic model. You'd need one more component of VA care, though - the total immunity from malpractice litigation that the VA enjoys. That'll be fun to get through Congress, don't you think?
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