A Bill That Actually Reforms Medicare

Over the long term, the savings from MACRA are enormous.

Tomorrow, the Senate will consider H.R. 2, a Medicare-reform bill that has already acquired a classic Beltway acronym, MACRA. Conservatives should give their full support: According to a report released last week, MACRA not only would pay for itself but would result in large net savings to the Medicare program over time, reducing unfunded liabilities and preventing massive new debt.

To oversimplify it, MACRA does two things to Medicare. First, it replaces a 21 percent planned payment cut to doctors — known as the “sustainable growth rate” or SGR — with a more durable payment system. (This is the devastating cut that has been repeatedly delayed with the “doc fix.”) Second, the bill strengthens means testing in Medicare and requires “Medigap” plans — which cover expenses Medicare does not, encouraging overuse — to expose patients to more costs when they seek treatment.

Some senators have expressed concerns with the bill related to its cost. The Congressional Budget Office projects that MACRA will spend more in the first decade than it saves – $141 billion. This was confirmed by the Center for Medicare Services (CMS) report last week. However, that same report confirms what conservative supporters of MACRA have been saying all along: Over the long term, the new payment regime will cost no more than current law — which assumes the 21 percent SGR cut — and yields even greater savings to the Medicare system.

The CMS report says that current-law spending on Medicare Part B (the doctor-visits part of Medicare) will be about the same post-MACRA as pre-MACRA. That means that MACRA does not, as was widely assumed, provide a windfall for physicians — it merely pays them what current law does. It simply replaces the SGR regime with a better one.

But there are two other parts to Medicare that MACRA will affect — Part A and Part D.

According to the CMS report, Part A (which pays for hospital visits and is financed by the payroll tax we all pay) sees significant savings under MACRA. The present value of future Part A benefits will decline by $387 billion, or just under 2 percent. That’s enough to delay the insolvency of Part A by a year.

So — $387 billion less in unfunded liabilities in Medicare Part A. But that’s not all. The report doesn’t speak to Medicare Part D, which pays for prescription medicines.

The 2014 Medicare Actuaries Report says that Part D spending will rise from 0.44 percent of the economy today to 1.36 percent of the economy in 2085. We don’t have any hard numbers as to how this will change under MACRA and won’t until the next actuaries report. But it’s a reasonable guess that Part D spending will plateau by mid-century under the bill, just as we see in the rest of the program. That should result in another several hundred billion dollars in savings, easily.

These long-term savings to Medicare take into account the short-term cost I laid out earlier. This is why policymakers should not be looking at a ten-year budget window when doing entitlement reform. Changes to these programs must start small and grow, because we don’t want to hurt retirees or near-retirees, and it’s impossible to save money in a ten-year window without doing so. And when we consider the long game of entitlement reform — what it will mean for our children and grandchildren — there’s plenty here to like.

RELATED: An Unappealing ’Doc Fix’

Note that all of these analyses use the current-law baseline. We have been told again and again by Heritage Action and the Committee for a Responsible Federal Budget that we absolutely have to use a current-law baseline, even though alternative measurements are considered more accurate. Well, that’s what CMS has done here. And under the insisted-upon baseline of the naysayers, MACRA cuts net Medicare spending over the actuarial window, reduces the buildup of future debt, and puts Medicare on a more sustainable path. That’s supposed to be what these groups are fighting for — entitlement reform.

To reiterate: CMS has found that MACRA will repeal and replace the SGR cuts at no long-term cost to taxpayers, and for our trouble we get hundreds of billions of dollars in reduced unfunded liabilities and debt from Medicare. All without a penny of tax increases. H.R. 2 is a conservative Medicare-reform bill that conservative senators should support.

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