#272: Medicare’s Accelerating Tsunami

Published May 16, 2011

The annual report from Medicare Trustees is on nobody’s Spring reading list, but it probably should be. Some of the top line stories have been covered in the mainstream media, which lit onto the fact that insolvency now arrives at 2024 – a date dangerously close to being within the political careers of many of our elected officials – instead of the more palatable 2029 predicted just last year. But behind that prediction is a sweeping range of ridiculous number games designed to inflate the year – meaning insolvency could well arrive much earlier if typical political trends continue.

For an indication of the true degree of the problem, turn to page 265 of the insomnia cure, and you’ll find this passage (emphasis mine) in the section of actuarial notes:

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.

Further, while the Affordable Care Act makes important changes to the Medicare program, there is a strong likelihood that certain of these changes will not be viable in the long range. Specifically, the annual price updates for most categories of non-physician health services will be adjusted downward each year by the growth in economy-wide productivity. The best available evidence indicates that most health care providers cannot improve their productivity to this degree–or even approach such a level–as a result of the labor-intensive nature of these services. Without major changes in health care delivery systems, the prices paid by Medicare for health services 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.

As the actuary points out, “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.” As we’ve pointed out before, just staying at the current level of physician reimbursements will, according to the Congressional Budget Office, cost taxpayers roughly $300 billion.

There is little pride in all of this in having been correct about the limits of President Barack Obama’s reform package. This trustees’ report is an indication that Obama’s solution fails–not just in the short term but in the long–at doing anything to solve the burgeoning cost problem our nation faces. Obamacare was not entitlement reform, nor was its aim a sustainable cost path. It was a universal coverage plan, one that could be perhaps justified by a moral argument, or even a practical one, from a leftward perspective–but never by one based on the reality of dollars and cents.

If you haven’t gotten enough Richard Foster time for the day (I know I never have too much time for Mr. Foster) but don’t have the flexibility to read the whole report, be sure to watch or listen to his presentation this morning at the American Enterprise Institute, which contains several interesting points.

What Washington does with this report remains to be seen, but it will, in all likelihood, be ignored by those who would rather pretend the problem doesn’t exist and start planning for their retirements for pre-2024.

— Benjamin Domenech



The AP’s Ricardo Alonso-Zaldivar reports on a major snag for the Accountable Care Organizations that are the pride and joy of the Obama administration: opposition from the AMGA, the “umbrella group representing premier organizations such as the Mayo Clinic,” which “wrote the administration Wednesday saying that more than 90 percent of its members would not participate, because the rules as written are so onerous it would be nearly impossible for them to succeed.”

“It’s not just a simple tweak, it’s a significant change that needs to be made,” said Donald Fisher, president of the American Medical Group Association, which represents nearly 400 large medical groups around the country providing care for roughly 1 in 3 Americans. Its members, including the Cleveland Clinic, Intermountain Healthcare in Utah, and Geisinger Health System in Pennsylvania, had been seen as the vanguard for accountable care.

The medical groups say they are worried they will be left holding the bag for losses, that the government has designed things so there is no easy way to tell which patients are part of the program, and that there’s no reliable way to adjust for patients who are sicker and require closer follow-up and more expensive treatments.

The deadline for public comments on the proposed regulations is still weeks away, but Fisher said “we needed to get their attention early on, so (the administration) could be thinking about how major changes are needed to make these regulations viable.”

Pair this with the American Hospital Association study finding that ACOs may be far more expensive to set up than first estimated – $11.6 to $26.1 million as opposed to the $1.8 million estimated by the Centers for Medicare & Medicaid Services (CMS) for start-up and one year of operations – and you’ve got a package that is heading down … and fast.

SOURCE: Yahoo News


A report from Georgia, where Gov. Nathan Deal (R) signed a law on Friday allowing for the purchase of out-of-state insurance:

“[S]tate law forces them to buy Georgia-based health plans, even though they might get a better deal or better coverage by going out of state,” said Kyle Jackson, state director of the National Federation of Independent Business. “Small business owners have the freedom to shop around for office supplies and equipment. They should be able to shop around for health insurance, too.”

The bill drew opposition in the General Assembly from lawmakers who warned that allowing out-of-state policies to be sold in Georgia could deprive the state of the ability to require insurers to cover preventive health care.

Critics argued that the availability of out-of-state policies would render impossible the enforcement of state mandates to cover preventive screenings, including mammograms, that lead to lower treatment costs.

But the legislation passed the Senate 37-17 during the final week of the legislative session before clearing the House of Representatives 98-58 on the session’s last day.

I’ll need to learn more about the details of this measure, but it sounds on its face like a positive step.

SOURCE: Atlanta Business Chronicle


Grace-Marie Turner writes at Critical Condition on a study recently released by the Kaiser foundation with researchers from the Urban Institute, which is highly critical of Republican efforts to block grant Medicaid. She writes:

The study concludes that if Obamacare were repealed and states were given block grants for Medicaid, state spending would increase between 45 and 71 percent to offset the loss of federal dollars or 44 million people would be without coverage as a result of the changes.


Rhode Island has proven that block grants can work to protect enrollment and to save taxpayers money. Giving states greater flexibility is the key to greater efficiency in Medicaid spending so states can modernize their programs to fit the needs of their citizens and match the resources available in the individual states. …

The Kaiser report gives virtually no consideration to the important efficiencies that could be gained by better managing and coordinating care for the 20 percent of patients who consume 80 percent or more of Medicaid’s resources. States closer to their citizens have demonstrated in Rhode Island, Vermont, and elsewhere that significant improvements in care are possible while saving taxpayers money if the federal government will allow them the freedom to make their programs more efficient.

We’ll have more to announce on the Medicaid reform front next week with a new project from The Heartland Institute. Yes, that’s a tease, and yes, you’ll like it.

SOURCE: National Review Online


I suppose I must mention former Massachusetts’ governor Mitt Romney’s address last week. Avik Roy has not one but two takes on it, and of course you’ve probably all read the devastating editorial from The Wall Street Journal concerning his namesake health care reform.

It is profoundly disappointing to see someone who might otherwise make a convincing technocrat tie himself in knots, displaying his lack of knowledge (the French system is indeed a disaster, but the Swiss?) and his natural tendency to overpromise. As Philip Klein points out here, Romney wrote in his USA Today oped previewing his remarks (their editors would late pan his speech):

Step 2: Reform the tax code to promote the individual ownership of health insurance. The tax code offers open-ended subsidies for the purchase of insurance through employers. This subsidy is unfair – as it doesn’t apply to insurance purchased on one’s own. I propose to give individuals a choice between the current system and a tax deduction to buy insurance on their own. This simple change creates the best of both worlds. Absolutely nothing will change for those who like their current coverage. And individuals who don’t get coverage through their employers will have portable, lower-cost options.

Just as it was not accurate for President Obama to promise “if you like your doctor/plan you can keep them,” it is simply not accurate for Romney to say this and promise true reform. With change in the system will come different plans and offerings, which means many people will experience change in coverage and in their doctor.

As I’ve noted in the past, one sad aspect of Gov. Romney’s situation is that he was given a golden political opportunity to make up for his mistake in 2006. During the battle over President Obama’s health care law, Romney could have taken to the airways to argue that, at the time he signed his solution into law, many of the policies were new, experimental, and untested. He could’ve reasonably claimed he didn’t realize what would come next – the soaring costs, the burdensome price controls, the crowded emergency rooms, the month-and-a-half wait times to see a doctor – and that the experience had showed him these top-down, anti-market, subsidy-driven answers simply do not solve our health care problems.

By acknowledging his own mistake, Romney could have transformed into one of Obama’s most prominent critics on health policy. Instead, he refused, doubling down on his error. In the history of presidential politics, it is rare to see a candidate who works so hard to stab himself in the back.

SOURCE: Forbes