Paying for Government Health care, Madoff style

You have to hand it to the new administration: when they promised change, they meant it.  Unfortunately, the change they promised is not the change they are focused on implementing.  In his appeal to voters, candidate Obama promised to change the way business was done in Washington.  But in their first month in office his team has shown itself devoted to hardball, insider and partisan politics, assembling an administration thick with veteran insiders, including several of the lobbyists they claimed had to be driven from the temple. But as we know, this is the quintessential end justifies the means crowd.  The empty promises of were merely the means to effect the change that Democrats have sought for generations.

In their drive to swiftly make changes in the health care sector that will accelerate the move towards a complete government takeover, the administration has already, in four weeks, used political sleight of hand to move its agenda.  Instead of introducing stand-alone legislation to expand government control of health care and allowing an open and transparent debate on the issue, the administration inserted major structural components of the socialized medicine system in the stimulus bill.  This week, they will raise the curtain on their first budget bill which will have the accounting mechanisms for their takeover tucked away in the minutiae.

Looking at the snippets that administration officials are running up flagpoles it appears that they are going to attempt a time-honored fiscal sleight of hand to rationalize spending billions more to put people into government health care programs.

Unnamed administration officials told the Washington Post that they need to create "running room for health reform," which means cutting costs so they can appear to be able to afford to enroll more people into Medicare and expand the population's reliance on the government to cover their medical care.  This is where the smoke and mirrors get set up. 

There are two ways to cut costs in government.  The first is to actually not spend money on something.  The example here is to cut reimbursements for Medicare Advantage plans.  Under these plans, beneficiaries enroll in a comprehensive program that includes drugs and supplemental coverage.  The previous administration believed that getting seniors into a Medicare plan that covered all their needs would simplify care, streamline the system, improve service and enhance consumer satisfaction, so they created financial incentives to increase enrollment in these plans. Democrats groused that it was a Republican ploy to boost revenues for insurance companies, not to mention that it could prove popular and make nationalizing care more difficult.  It has thus become one of the few targets of Democrats for cost cutting.   By eliminating the incentives for Medicare Advantage, (in which about a quarter of beneficiaries enrolled) they will effectively destroy this innovation, returning beneficiaries to the disjointed and inefficient fee-for-service model. 

You can calculate in black and white exactly how much less money you are going to spend by destroying Medicare Advantage and you can then use that money to enroll more people in standard Medicare by lowering eligibility requirements.  Now while this is pretty straightforward from an accounting standpoint, the Democrats' trick is that if you add a few people here and there to Medicare, eventually everyone is eligible and, lo and behold, you have a national health care system!

The second cost cutting idea is much more of an illusion and much more fiscally irresponsible.  Killing Medicare Advantage is a policy decision-a bad one-but it represents a shift in actual spending based on policy differences.  The administration is also claiming that it is going to expand health care for the uninsured and everyone else partly by saving vast sums of money through other policy changes.  The problem is no one can credibly predict how much, if any, actual savings will occur and when.  It is also ironic that the Obama administration is touting policy changes that originated in the Bush administration as the keys to these huge savings.

Former Health and Human Services Secretary Mike Leavitt made it his cause to promote "value driven health care," which relied partly on improving the use of information technology to improve efficiency and capture the data necessary for enhancing cost effectiveness.  He also was a strong advocate of pay for performance initiatives which would boost provider payments for good results, not just more procedures.  Democrat complaints back then ranged from privacy intrusion to micro-managing the doctor patient relationship.  But now, they are the key to the Democrats' policy objectives.

Democrats will cobble together predictions and estimates of how much money these new policies will save.  The problem is, they can not be effectively quantified and could be wildly inaccurate.  But they will spend real dollars in direct proportion to the theoretical dollars being "saved."  Illinois' disgraced former governor Rod Blagojevich used this exact technique to try and expand children's health care in 2005.  By moving Medicaid patients into a primary care case management (PCCM) system (a politically acceptable form of managed care), the state would save $57 million per year in Medicaid costs.  And by some supreme good fortune, that was exactly the amount of money he needed to spend to enroll thousands of middle class kids into Medicaid. 

Quite predictably, (if anyone had listened to actual health care experts), Medicaid patients did not flock to the voluntary PCCM.  The state did not make it mandatory due to political considerations.  There was little hard evidence generated that showed quantifiable savings on beneficiaries that did sign up.  Physicians who were sick and tired of the dysfunctional Medicaid system in Illinois already refused to participate in the new PCCM system.  In short, the predicted savings did not materialize.  So the state postponed the enrollment of the new beneficiaries in Medicaid.  Ha, ha!  Just wanted to see if you were paying attention.  Of course they didn't.  The state still spent the tens of millions they predicted they would save, but never did.  Now the federal government is trying to sell the same bill of goods on a much larger scale.

Some fine organizations, like Randhave contributed to the body of research on cost savings through better use of information technology and disease prevention.  But it must be emphasized that this is not the same as moving real dollars from one line item in the budget to another.  It is a gamble, plain and simple.  And basing the financial sustainability of an enormous expansion of government control over the economy on a prediction is unwise in boom times.  It is blatantly irresponsible during times these same Democrats characterize as an economic catastrophe.  It's the Bernie Madoff school of health care financing.

So by gutting an increasingly popular and efficient Medicare program that is not compatible with policy goals and cooking the books to create financial "running room," Democrats will miraculously find fictitious billions under the sofa cushions in Washington that they will use to pay for increasing government control over health care.  And they will claim it isn't costing you a dime. 

Douglas O'Brien is a public affairs consultant and former official with the Department of Health and Human Services.
If you experience technical problems, please write to