Politics & Policy

A Medicare Bill Conservatives Need to Embrace

It’s not perfect, but it will pay huge benefits in the long term.

The House of Representatives is poised to pass H.R. 2, the Medicare Access and CHIP Reauthorization Act of 2015, today by a wide margin. The Senate is expected to follow suit, again by a wide margin, and President Obama is expected to sign H.R. 2 into law.

The major components of this bill are: the permanent avoidance of a long-planned 21 percent payment cut to doctors who take Medicare patients; asking wealthier seniors to pay for more of their own benefit; and requiring that “Medigap” plans have a modest amount of cost sharing in their plan design.

The Congressional Budget Office finally came out with a score yesterday afternoon. As a conservative, you can be forgiven if you feel a bit of whiplash. Some conservatives say this plan increases the national debt, is too timid, and is a giveaway of key leverage to extract annual spending cuts. Other conservatives (myself included) think this bill will reduce the unfunded liabilities of Medicare without raising taxes, is a good down payment on even more entitlement reforms, and is well worth supporting.

So which is it?

Let’s start with the CBO score. Under a “current law” baseline (wherein CBO assumes that physician reimbursements will be cut 21 percent next week and stay cut forever), H.R. 2 is a ten-year spending increase of $141 billion, because the law would do away with that 21 percent cut and the government would have to pay doctors more.

Under a more realistic baseline in which doctors don’t face a 21 percent Medicare cut next week (or ever), H.R. 2 is a ten-year spending cut of $1 billion. That’s because in this scenario, elimination of the 21 percent cut is already included in the baseline, so it doesn’t count as new spending.

So it really comes down to deciding which starting point (another term for baseline) you think is more reasonable. I think the more reasonable starting point is that Congress won’t let next week’s 21 percent reimbursement cut happen (a safe bet, since they’ve avoided it 17 times since 2003).

#related#Budget hawks see the use of this baseline as an accounting trick to hide a spending increase. They agree that the planned physician-reimbursement cuts won’t happen, but say that when they are repealed, they will be compensated for with other spending cuts — bringing us right back to the current-law baseline. That means current law is the proper baseline for the CBO to use. They will point out that Congress has paid for almost all the value of “doc fixes” since 2003 with equivalent spending cuts. I can tell you that this is a highly disputed proposition. The best experts on and off the Hill tell me that many — maybe even most — of the spending cuts in doc fixes have been temporary, or accounting window-dressing, or other gimmicks. In fact, the only source skeptical conservatives have for their claim that the spending-cut offsets have been real is from a center-left think tank, and that study doesn’t drill down into what was real and what was not.

But there we are — over the next ten years, CBO says that H.R. 2 is either a spending increase of $141 billion, or a spending cut of $1 billion. It just depends what assumptions you’re willing to adopt.

But aren’t we talking about entitlement reform here? Since when do we measure entitlement reform in ten-year budget windows anyway, as if it were a defense supplemental or a post office? Aren’t entitlements large battleships that turn around slowly, which requires the use of very long actuarial windows of analysis? Don’t we say that we want reforms phased in over time, so that the brunt of them will be borne by younger workers who have decades to adjust, and not by retirees and near-retirees?

That longer view is precisely the way that the entitlement-reform community has always viewed changes to entitlements, not in ten-year short-term scoring windows. So if the long-term window is what’s appropriate (the Medicare trustees use 75 years), what does the policy community have to say about reasonable policy assumptions in that time? Before last week, it was not a controversial proposition to say that Medicare spending without the physician spending cut was the proper baseline to use over the longer run. It was (variously) “more realistic,” “more probable,” and “more plausible.” The baseline that skeptics have lately hailed (i.e., the auto-pilot current-law baseline, which assumes a 21 percent spending cut forever) they very recently called “less realistic,” “more optimistic,” etc. It is they — not supporters of the bill — who are changing the Medicare spending metric at the last minute.

This scoring convention — over the long run, and using the most realistic spending assumption — is standard fare used by scholars from the Heritage Foundation, the American Enterprise Institute, the Mercatus Center, the Manhattan Institute, the National Center for Policy Analysis, and everyone else who writes on this. The long-term/realistic scenario was also the accepted starting point used by liberal operations like the Committee for a Responsible Federal Budget, the Simpson-Bowles Commission, the Pete Peterson Foundation, the Brookings Institution, and the Concord Coalition. Even Medicare’s own trustees decided in 2014 to follow the literature and adopt the more realistic baseline — the one today’s conservative critics all of a sudden want to ignore.

The CBO score doesn’t get very far into a long-term analysis. It says that spending reductions are likely in the second decade, but then the analysis stops. We do, however, hear from CBO that “the budgetary effects of two [structural-reform] provisions of the bill would increase especially rapidly: The effect of the increase in the number of beneficiaries subject to income-related premiums for Parts B and D of Medicare would grow rapidly because the share of Medicare enrollees subject to those surcharges would rise over time; similarly, the effect of the limitation on first-dollar coverage by certain Medigap plans would grow rapidly because the policy would apply only to beneficiaries who enroll after 2019.”

It seems likely, then, that the structural reforms will grow much faster than the amount spent on doctors will grow above frozen current policy. It will take a while to get there, but the effects of these reforms will be permanent and cumulative. We can very reasonably anticipate a future where my daughter — who will turn 65 in November of 2078 — will be a then-typical senior who pays for most of her own Medicare benefit. That will be largely thanks to H.R. 2, the means-testing and cost-sharing that preceded it, and the means-testing and cost-sharing that will no doubt continue to be passed by future Congresses.

We’ll know how many hundreds of billions or trillions of dollars H.R. 2 shaved off the Medicare program’s unfunded liabilities in next year’s Medicare trustees’ report. It’s this cut to the future debt caused by the entitlement crisis — a cut not paired with a tax increase, as demanded repeatedly by President Obama and congressional Democrats—that should be the source of conservative support for this bill.

The final criticism is that this plan is “too timid.” To that I would simply say that we have to live in the world as we find it, and that world is one where we need the support of about 10 Democratic senators and Barack Obama.

As a further commendation, I would note that this is the third bill requiring significant means-testing since 2003 — that’s three means tests passed by Congress in a dozen years. So there is every reason to believe these long-term structural spending cuts will not only stick, but be built upon by future Congresses. In the future, seniors like my daughter will inherit a world where paying for her own Medicare benefit is an expected part of the social contract — thanks to real leaps forward like H.R. 2.

— Ryan Ellis is tax-policy director for Americans for Tax Reform.


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