Critical Condition

NRO’s health-care blog.

Clarifying Obamacare’s House-of-Cards Financing


The New Republic’s Jonathan Chait likes to claim that a misinformation campaign is being waged by those who favor the American Founding over efforts to refound America as a statist, European-style “new republic.”

Three of the most prominent political leaders of the American Left in the last quarter-century — Clinton, Clinton, and Obama — have each displayed a remarkably tenuous grasp on the truth, so it’s strange that Chait should throw stones. In terms of honesty, each of those leaders held to the standards of Washington the city, not Washington the man. In the particular case of the push for Obamacare, no less neutral an observer than the Washington Post’s Robert Samuelson writes, “The disconnect between what President Obama says and what he’s doing is so glaring that most people could not abide it. The president, his advisers and allies have no trouble. But reconciling blatantly contradictory objectives requires them to engage in willful self-deception, public dishonesty, or both.”

Nevertheless, since Chait imagines that his opponents are the ones who deliberately deceive and are unwilling to admit when they are in error, he should be pleased to hear me admit that I misunderstood a provision in the Congressional Budget Office report on Obamacare. He is in error, however, in imputing sinister motives to this mistake.

I thought that the $186 billion in “savings” being credited to Obamacare for cutting payments to Medicare providers must have — being such a colossal sum — referred to the well-publicized cut in payments to doctors. I therefore omitted a parenthetical reference that specified that this was not a cut in pay for “physician services,” because I thought the report was using that phrase not in its commonsense usage but in a much narrower sense to refer only to physician-provided home health services. But, upon further examination, it turns out that the $186 billion in “savings” — updated in the final version of Obamacare to $196 billion — comes not from cuts in payments to doctors but from cuts in payments to essentially every other Medicare provider — hospitals, hospices, nurses, etc.

None of this changes this central fact: Obamacare is built on house-of-cards financing.

All of this gets quite complicated, as would anything that entrusts Washington with comprehensive overhauls of whole sectors of American life. But there are four points that need to be clarified.

First, one thing that everyone from Peter Orszag on down agrees upon is that the number-one threat to our nation’s future fiscal solvency is Medicare. So what does Obamacare do? It siphons hundreds of billions of dollars out of Medicare to fund a massive new entitlement program: Obamacare. The Obama administration then shamelessly claims that these cuts will make Medicare more solvent, even though all of the money “saved” from cuts to Medicare will be spent on Obamacare — not used to help close the widening gap between Medicare’s receipts and its expenses.

Second, if there is one additional outlay to Medicare that everyone views as vital, it’s the “doc fix” to keep doctors’ pay from being cut by over 20 percent. However, the “doc fix” remains unfunded because the $2 trillion in taxes and Medicare cuts that would be imposed over Obamacare’s real first decade (2014 to 2023) would all be spent elsewhere. None of it would be used to prevent doctors’ pay from being cut.

True, my “small bill” and other proposed health-care reforms don’t provide funding for the “doc fix,” either. But they also don’t raise taxes by $1 trillion (from 2014 to 2023), funnel another roughly $1 trillion out of Medicare over the same span, and then fail to use any of that $2 trillion to cover the “doc fix.”

Third, the usual practice in the past has been to cut other spending to pay for the “doc fix.” But the Democratic House has instead passed a “doc fix,” separate from Obamacare, with no means to pay for it. If we successfully repeal Obamacare, we would only have to raise taxes and/or cut Medicare spending by about one-tenth as much as under Obamacare, and we’d be able to cover the costs of the “doc fix” without raising deficits by once cent. But if that money instead goes to Obamacare, as under current law, the “doc fix” will raise deficits by over $200 billion.

Fourth, while Chait is right that Obamacare is not getting credit for $196 billion in “savings” from a scheduled cut in doctors’ pay that will never happen, it is getting credit for $196 billion in “savings” from other cuts in pay to Medicare providers that probably won’t happen either. Obamacare calls for cuts in pay (wishfully calling them “productivity adjustments”) to those who provide inpatient hospital services — including bed and board, nursing services, use of hospital facilities, drugs, biologicals, supplies, appliances, equipment, and diagnostic and therapeutic items and services — as well as to those who provide skilled nursing or rehabilitation services, hospice care, and home health services.

One of three things can happen as a result: Providers can cover shortfalls from insufficient Medicare payments by further hiking prices for the majority of Americans who are covered privately; or Congress can act to avoid the cuts, adding $196 billion to Obamacare’s deficit spending; or providers can reduce or cancel services for Medicare patients.

Medicare’s chief actuary points to the likelihood of the last scenario, estimating that “roughly 20 percent of Part A providers would become unprofitable within the 10-year projection period as a result of the productivity adjustments,” and therefore “might end their participation in the [Medicare] program.”

The CBO suggests that the middle scenario is most likely, writing that “longer-term calculations reflect an assumption that the provisions of the reconciliation proposal and H.R. 3590 are enacted and remain unchanged throughout the next two decades, which is often not the case for major legislation.” That’s CBO-speak for “If you think these cuts will actually materialize, we’d like to sell you some oceanfront property on Capitol Hill.”

In sum, the Democrats are playing a shell game with Obamacare. They hack away at Medicare funding and spend the “savings” on Obamacare instead of using it to make Medicare more solvent. Then they disingenuously claim that these “savings” will magically fund Obamacare and make Medicare more solvent all at once. They also don’t use any of the Medicare “savings,” or any of the newly imposed taxes, to fund the “doc fix.” Instead, they sweep the “doc fix” under the rug and pass a pure deficit bill to cover it. Meanwhile, they also cut $196 billion from the future pay of other Medicare providers and would spend it on Obamacare as well, opening the door to what’s likely to be an annual need for a “hospital-fix” or “nurse-fix” in the process.

President Obama and the Democratic Congress have tried to sell the American people a false bill of goods. The American people aren’t buying it. And unless voters get duped between now and the 2012 elections, they and their offspring will never have to suffer through paying for it — or living under it.


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