Politics & Policy

The SGR Fix Will Bust the Budget

But hey, if you’re going to be totally fiscally irresponsible, this bill is the way to do it.

The House is expected to vote today on a bill to eliminate the annual cuts in Medicare payments to doctors that Congress has been postponing for more than a decade — the so-called “sustainable growth rate” (SGR) cuts. (UPDATE: The bill passed the House by a 392–37 margin.) The bill would result in $145 billion in new federal spending, above current law. It would also require wealthier seniors to pay for more of their own Medicare coverage, and would restrict the ability of seniors to buy supplemental coverage that completely shields them from the cost of the medical care they consume. (Such comprehensive “Medicare supplemental” coverage tends to increase overall Medicare spending.)

A number of people have asked me what my take on this legislation is. Basically, it is this: If you’re going to be totally fiscally irresponsible, this is the way to do it.

Congress created the SGR to limit Medicare spending on physician services. The SGR uses a formula to cut Medicare payments to physicians automatically. The formula works too well: It mandates cuts so deep that Congress decides every year it cannot stand for them. That’s why Congress has postponed those cuts some 17 times since 2003. This legislation would eliminate the cuts permanently, which of course would increase federal spending — by the $145 billion mentioned above (over the next ten years).

As a starting point, we should recognize that the ideal amount the federal government should pay doctors is $0.00. So right off the bat, we know this bill is moving in the wrong direction. The bill compounds this error by not paying for all of that new spending by cutting spending elsewhere or increasing revenues. As a result, it increases the federal debt — which is to say, it imposes a tax burden on future generations who cannot vote or have not even been born yet. So this bill is yet another example of the dessert-first-spinach-later approach to fiscal stewardship that is business as usual in Congress.

Ryan Ellis of Americans for Tax Reform disagrees. He is the most prominent conservative supporter of this bill’s approach. Ellis argues that if we assume Congress has already spent that $145 billion, then this bill is actually a $1 billion spending cut. Well, yes, but Congress has not already spent that $145 billion. If we assume that in fiscal year 2016, Congress will spend 100 percent of U.S. GDP, then President Obama’s proposed budget will be an even bigger spending cut. (The only difference is in the degree of reasonableness of those two assumptions.) That’s not how we do these things. Current law does not provide for that spending. So if you want Congress to spend that money, it counts as a spending increase.

Ellis’s strongest arguments are that the bill increases means-testing in Medicare, prohibits Medicare supplemental plans from providing first-dollar coverage, and — c’mon, folks — this is the best deal we are going to get given current political realities.

Sure, means-testing is extremely important. It forces wealthier Medicare enrollees to pay for more of their Medicare coverage. Even more important than its fiscal impact is the fact that, because means-testing exposes some Medicare enrollees to pay more of the cost of their coverage, it fractures the broad coalition that supports the current Medicare program, and instead builds a constituency for real Medicare reform, such as converting Medicare to a Social Security–like program that just gives seniors cash. If this bill paid for all its new spending, each year, by increasing the premiums that wealthier seniors have to pay for their Medicare coverage, I would say it was a fantastic deal. But it does not.

Prohibiting first-dollar coverage in Medicare supplemental plans may seem like a restriction on contractual freedom, but in fact it is really just a condition placed on a government subsidy. If you want to enroll in Medicare, you cannot also buy supplemental coverage that completely anesthetizes you to the cost of the care you consume (and the costs you are imposing on taxpayers). I have no problem with this restriction, but it does not do much to offset this bill’s new Medicare spending.

Is this the best that Medicare reformers can do, given political realities? I wonder. For all its faults, and despite the fact that it has become (in health-policy circles, anyway) a punch line, the SGR forces Congress to confront runaway Medicare spending year after year. If this bill passes, it will be easier for Congress to ignore runaway Medicare spending — and that spending will begin to run away even faster. Reformers might be better off leaving the SGR in place and preserving the leverage it creates until political realities have changed — that is, until there is a president who will support broader Medicare reform.

This bill does not pay for its new spending in the first year, or in the first decade, or even in the second decade. But it does at least increase means-testing in Medicare, which appears to be the most durable type of Medicare cuts. So, as I said at the outset, if Congress is going to be totally fiscally irresponsible, this is probably the way to do it.

— Michael F. Cannon is the director of health-policy studies at the libertarian Cato Institute.

Michael F. Cannon — Mr. Cannon is director of health-policy studies at the Cato Institute and co-author of Healthy Competition: What’s Holding Back Health Care and How to Free It.


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