Whatever Scenario You Use, Obamacare Explodes the Deficit

Published March 16, 2013

I wrote earlier about the inaccuracies in criticisms of the GAO’s recent report on the costs of Obamacare.  Christopher Conover of the Duke school of medicine and AEI has a more thorough critique here.   

“But things go to hell in a handbasket under either the alternative or baseline extended scenario. It is merely when we arrive at the gates of hell that differs (by about 15 years). So which scenario is more plausible? Here are a few factoids to help you decide. Current law requires -Medicare to slash physician fees by 25 percent next January (under the BBA). -Additional (Obamacare-required) cuts to physician fees so severe that by 2030, Medicare will be paying doctors 60 percent less than private health insurance plans (and nearly one-third less than Medicaid pays!). -Obamacare-mandated reductions in payments to hospitals so drastic that hospital prices for both Medicare and Medicaid will be around half those paid by private health insurers by the year 2040. Eventually, payment reductions to hospitals will mean they are paid 61 percent less by Medicare and Medicaid than by private health insurers; physicians eventually will be paid 74 percent less under Medicare than private insurance.”

“What will the consequences be? Well, the Medicare actuary projects 15 percent of Part A providers (e.g., hospitals and other institutional providers) will have negative margins by the year 2019 and 40 percent will be in the red by the year 2050. That is, they will be at risk of insolvency. Historically, doctor fees in Medicaid have been far below those of Medicare (28 percent below Medicare rates in 2008). Not surprisingly, nearly one-third (31 percent) of physicians refuse to accept any new Medicaid patients versus 17 percent for Medicare. So what do you think will happen to seniors’ access to care once Medicare starts paying physicians less than what Avik Roy has labeled “America’s worst health care program”? Such cuts portend huge problems in access for Medicare and Medicaid patients, either because providers will refuse to treat them or because facilities will literally have been driven to bankruptcy. And how do you think members of Congress will respond when hordes of frustrated seniors swamp them with complaints about not being able to find a physician or hospital within easy reach?”

But Conover’s not done – he also hones in on one strain of thought, espoused by Rick Ungar and others, which was particularly troublesome: that Sen. Sessions had asked GAO to cook the books to make his argument.

“The most egregious charge–and quite flagrantly false–is that Senator Sessions “gave directions requiring her [the GAO study’s lead staffer] to ignore any reasonable assumptions with respect to the revenue and cost bending provisions of the law.”  What Mr. Ungar quite obviously does not understand is that the alternative fiscal scenario–the one that Mr. Ungar sneeringly assures us is “a pretty foolish way to conduct a serious study”–is standard practice among federal agencies. The Congressional Budget Office has used it for years (dating back at least to the Bush administration), the Medicare and Social Security Trustees use it, the Medicare actuary uses, the Department of Treasury uses it (this is all codified/detailed in my longer report). Even the GAO itself has used this alternative fiscal scenario in the past–a point freely conceded by Jonathan Chait (in a post cited admiringly by Mr. Ungar!) Rachel Maddow had the decency to retract the same false claim on her blog, as did Bonnie Kavoussi (a little less snarkily) at The Huffington Post. Mr. Ungar meanwhile, clings bitterly to the belief that Senator Sessions handed GAO a set of completely cock-eyed assumptions and that GAO dutifully set about cranking out completely meaningless calculations.”
“Instead, Mr. Ungar might be quite surprised to learn that the Medicare actuary has been signalling for years that the cost containment provisions in Obamacare may not hold up. The rationale is nicely codified here in a memo written in May 2012, but the same argument was made in parallel memos from 2010 and 2011 (i.e., long before Senator Sessions made his request of GAO). And contrary to Mr. Ungar’s fact-challenged account, the reason is not because analysts assume the cost containment provisions will literally fail. It’s because the consequences of keeping them in force will be far too draconian for even progressives to view as desirable.  Therefore Congress is likely to relax these provisions after 2020, just as they have repeatedly relaxed the legally required cuts in physician fees on more than a dozen occasions since 2003.”

Expecting Congress to behave as Congress has always behaved is, 90% of the time, a good bet.