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September 17, 2010

Medicare and ObamaCare

By Marcia Sielaff
Facts are stubborn things; and whatever may be our wishes, our inclinations, or the dictates of our passions, they cannot alter the state of facts and evidence.   John Adams

The problem with the truth is that it keeps breaking out at inconvenient times. The most recent breakout occurred just as the Obama administration launched another campaign to persuade a skeptical populace that the Affordable Health Care Act really is.

If most people missed the event, it is because the mainstream media did its best to downplay what the WSJ called "the most damning fiscal indictment to date of the Affordable Care Act."

For the first time in recorded history, Medicare's Chief Actuary found it necessary to append a dissent to the laboriously named "Annual Report of the Board of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds."

In the 18-page addendum, the Office of the Actuary contests the claim that the Act "improves the financial outlook for Medicare substantially." According to the Actuary, the trustee's projections "do not represent the best estimate of actual future Medicare spending," and the assumptions that are the basis of the trustee's optimism are "implausible." Chief Actuary Richard Foster's detailed addendum explains why.

There are three major problems. First, the trustees ignore "secondary impacts"; second is their assumption that significant savings can be achieved by reducing payments for health services; and third is that productivity increases in health services will help to offset the cost of care.

The Actuary's dissent explains the "secondary impacts" and why they are important.

It is important to note that the current-law estimates shown in the 2010 Medicare Trustees Report comprise only the direct impacts of the current-law payment reductions. Not included are possible secondary impacts, such as reduced beneficiary access to Medicare services, reduced quality of care, and/or increased morbidity or mortality rates. For example, the negative physician payment updates could potentially result in physicians reducing the number of traditional fee-for-service Medicare patients that they see each day.   

Foster describes the scale of the reductions.  

Among the most important factors in projecting Medicare expenditures are the annual payment updates to Medicare providers. The estimates shown in the 2010 Trustees Report are complicated substantially by mandated reductions in these payment updates for most Medicare services. In particular, Medicare payment rates for physician services as determined by the Sustainable Growth Rate (SGR) system are scheduled to be reduced by roughly 30 percent over the next 3 years. For most of the other categories of Medicare providers, the recently enacted Patient Protection and Affordable Care Act (ACA), as amended, calls for a reduction in payment rate updates equal to the increase in economy-wide multifactor productivity... in our view (and that of the independent outside experts we consulted), neither of these update reductions is sustainable in the long range, and Congress is very likely to legislatively override or otherwise modify the reductions in the future to ensure that Medicare beneficiaries continue to have access to health care services.

And warns that such reductions are untenable,

... [W]e talked informally with several prominent health economists ... [A]ll of them believed that the payment reductions were unsustainable, ...Writing in a National Journal blog, Dr. David Cutler, the Otto Eckstein Professor of Applied Economics at Harvard University, stated that "as the actuaries ... note, traditional payment reductions are not a long-term source of financing. Prices can be reduced only so far before they become unreasonably low." Similarly, Dr. Joseph Newhouse wrote in an article for Health Affairs, "...it is equally hard to imagine cutting only Medicare spending while spending by the commercially insured under age sixty-five continues to grow at historic rates, which would lead to a marked divergence between what providers are paid for treating the commercially insured relative to what they are paid for Medicare beneficiaries. This gap could jeopardize Medicare beneficiaries' access to mainstream medical care." The other experts we spoke with also foresaw that the Medicare payment limitations would become unworkable.

In several detailed paragraphs, Foster also explains why it is unrealistic to expect greater productivity gains to offset costs. "For the health sector, measured productivity gains have generally been quite small, given the labor-intensive nature of health services and the individual customization of treatments required in many instances. " He finds that neither evidence nor experience supports the trustee's optimistic prognostications.

The technical details of the Actuary's dissent tend to be soporific, but the message is clear. As summarized by the Wall Street Journal, the alleged cuts "exist only on paper and were written so they could pretend to reduce the deficit and perform the miracles the trustees dutifully outlined."

...Which brings up the Independent Payment Advisory Board (IPAB). The Goldwater Institute points out that "... the chief actuary must predict future growth in Medicare enrollment and spending each year, and give that information to a new federal agency created by health care reform called the Independent Payment Advisory Board (IPAB). That board will have virtually unchecked power to adopt laws setting prices and payments for nearly all medical services."  According to the terms set forth in the Act, IPAB's task is to reduce expenditures to limits prescribed in the Act. IPAB's recommendations to that end, if not specifically overridden by Congress within a limited period of time, become law.

Further details are best obtained by reading the Actuary's dissent and/or the various commentaries. The Goldwater Institute, the Cato Institute, the Heritage Foundation, and the Wall Street Journal have all weighed in

It is no surprise that the trustee's optimistic conclusions are at odds with real-world consequences. This administration's policies often fall short of predicted outcomes. Consequently, we have stimulus bills designed to create jobs (but don't), a heavily subsidized and enormously expensive electric car (that people don't seem to be rushing to buy), and now a Medicare system which is supposed to save money by insuring millions more people with fewer doctors to treat them, no reduction in service, and insurance companies that are prohibited from raising premiums.

It is now manifest that the claims of cost savings are untenable. It is also clear, as many have long suspected, that under the terms of this legislation, it is not physicians who will be in charge of health care, but panels of experts with the souls of bookkeepers.

Marcia Sielaff writes for What Would the Founders Think.com.
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