The Corner

Re: Dems on Medicare

Andrew, the Democratic “plan” for Medicare — to leave things as they are — is even worse than it seems on the surface.

 

As you noted last Friday, the new Medicare Trustees report says the program is five years closer to bankruptcy than it seemed to be last year: Its trust fund will run out of money in 2024. But the real shocker in this year’s report is a letter that the chief actuary of Medicare attached to the very end of the report, basically saying that things are much worse than the trustees suggest. The letter (which starts on page 265 of the document and pretty much makes the prior 264 pages moot) first says that the trustees were compelled to adopt some near-term assumptions that are highly implausible:

In past reports, and again this year, the Board of Trustees has emphasized the strong likelihood that actual Part B expenditures will exceed the projections under current law due to further legislative action to avoid substantial reductions in the Medicare physician fee schedule. While the Part B projections in this report are reasonable in their portrayal of future costs under current law, they are not reasonable as an indication of actual future costs. Current law would require a physician fee reduction of an estimated 29.4 percent on January 1, 2012—an implausible expectation.

Then it says that Obamacare, because it calls for across-the-board cuts in Medicare funding but does not put in place the market mechanisms for encouraging greater productivity in health care, spells disaster for Medicare providers, and therefore for Medicare recipients:

Without major changes in health care delivery systems, the prices paid by Medicare for health services [under the cuts required in the new law] are very likely to fall increasingly short of the costs of providing these services. By the end of the long-range projection period, Medicare prices for hospital, skilled nursing facility, home health, hospice, ambulatory surgical center, diagnostic laboratory, and many other services would be less than half of their level under the prior law. Medicare prices would be considerably below the current relative level of Medicaid prices, which have already led to access problems for Medicaid enrollees, and far below the levels paid by private health insurance. Well before that point, Congress would have to intervene to prevent the withdrawal of providers from the Medicare market and the severe problems with beneficiary access to care that would result. Overriding the productivity adjustments, as Congress has done repeatedly in the case of physician payment rates, would lead to far higher costs for Medicare in the long range than those projected under current law.

The combination of these factors, the actuary says, means Medicare as it now stands is in far, far greater trouble than either the trustees or CBO are projecting:

For these reasons, 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).

In other words, Medicare as we know it is on the fast lane to ruin. It’s not the House Republican Budget that is undoing it, it’s the current structure of the program, exacerbated by Obamacare. House Republicans have proposed one way to fix it, which would also help reduce health-care costs more broadly. Surely there are also other ways, but the Democrats haven’t offered any.

 

Yuval Levin is the director of social, cultural, and constitutional studies at the American Enterprise Institute and the editor of National Affairs.

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