Tag Archives: unsustainable

Bernie Sanders’ Single-Payer Plan Provides Benefits for Billionaires

On Wednesday, socialist Sen. Bernie Sanders plans to introduce the latest version of his single-payer health-care program. If past practice holds, Sanders will call his plan “Medicare for All.” But if he wants to follow Medicare as his model, then the Sanders plan could easily earn another moniker: Benefits for Billionaires.

An analysis released by the Congressional Budget Office (CBO) in August demonstrates how Medicare currently provides significant financial benefits to seniors at all income levels, including the wealthy. Specifically, the CBO paper analyzed lifetime Medicare taxes paid, and lifetime benefits received, by individuals born in the 1950s who live to age 65.

The non-partisan budget office found that at every income level, seniors received more in Medicare benefits than they paid in Medicare taxes. Men in the highest income quintile—the top 20 percent of income—received a net lifetime benefit from Medicare of nearly $50,000, even after taking into account the Medicare taxes and premiums they paid. Women received an even greater net benefit between taxes paid and benefits received at all income levels, reflecting both longer life expectancy (i.e., more benefits paid out) and shorter working histories (fewer taxes paid in).

The CBO analysis confirms prior work by the Urban Institute—no right-wing think tank—that Medicare pays out more in benefits than it receives in taxes at virtually all income levels. For instance, according to Urban’s most recent study, a high-earning male turning 65 in 2020 will pay in an average of $123,000 in Medicare taxes, but receive an average of $222,000 in benefits.

Melinda Gates Doesn’t Need Government Health Care

Some may quibble with the work by CBO and Urban Institute for containing an important oversight. In analyzing only Medicare benefits and Medicare taxes paid, the two papers omit the portion of Medicare’s financing that comes from general revenues—including the income taxes paid primarily by the wealthy. While it’s difficult to draw a precise link between Medicare’s general revenue funding and any one person’s income tax payments, it’s possible that—particularly for one-percenters—income taxes paid will offset the net cost of their Medicare benefits.

But regardless of those important details, the larger point still holds. Even if her taxes do outweigh the Medicare benefits received, why does Melinda Gates need the estimated $300,000 in health care benefits paid to the average high-income woman born in the 1950s? Does that government spending serve a useful purpose?

Moreover, if Medicare provides a net benefit to the average senior at virtually every income bracket, how does the program as currently constructed represent either 1) social insurance or 2) a sustainable fiscal model? Under an insurance model, some individuals “win” by receiving greater net benefits, while some individuals “lose” by not fully receiving back the money they paid in. But given that multiple analyses have demonstrated that virtually every cohort of seniors currently benefits from Medicare, then the program’s only true “losers” are the future generations of Americans who will fund today’s profligate spending.

We Don’t Have Money to Subsidize the Rich

Yes, Medicare currently does include some means testing for wealthy beneficiaries, in both the Part B (physician) and Part D (prescription drug) portions of the program. But common sense should dictate first that wealthy individuals not only should be able to opt-out of Medicare if they so choose—because, strange as it sounds, the federal government currently forbids individuals from renouncing their Medicare benefits—wealthy seniors should not receive a taxpayer subsidy at all. Whether in Medicare or Sanders’ socialist utopia, the idea that Warren Buffett or Bill Gates warrant taxpayer subsidies defies credulity.

Despite this common-sense logic, liberals continue to support providing taxpayer-funded benefits for billionaires. In 2011, then-Rep. Henry Waxman (D-CA) said “if [then-Speaker John] Boehner wants to have the wealthy contribute more to deficit reduction, he should look to the tax code.” Perhaps Waxman views keeping wealthy seniors in Medicare as a form of punishment for the rich. After all, nearly nine in ten seniors have some form of supplemental insurance, and a form of “insurance” one must insure against may not be considered an unalloyed pleasure.

Regardless, Medicare faces its own financial reckoning, and sooner rather than later. In 2009—the last trustees’ report before Obamacare introduced fiscal gimmicks and double-counting into Medicare—the program’s actuaries concluded Medicare’s Hospital Insurance Trust Fund would become functionally insolvent this year. Given that bleak outlook, neither Medicare nor the American people can afford Sanders’ ill-conceived scheme to provide taxpayer-funded health benefits to wealthy 1-percenters.

This post was originally published at The Federalist.

A Fiscally Irresponsible Bill

Last week the Wall Street Journal, in endorsing House Republicans’ American Health Care Act, highlighted the legislation’s “fiscal bonus.” Yes, the bill’s Medicaid reforms warrant praise as a good effort to control entitlement spending. But that meritorious effort notwithstanding, the bill contains numerous structural flaws, with potentially more on the way, that could bust budgets for decades to come.

Some of the same leaders decrying or explaining away Congressional Budget Office scores showing large coverage losses due to the bill have proved far too willing to take the bill’s supposed deficit savings at face value. But a good CBO score doesn’t necessarily mean legislation will reduce the deficit; instead, it means that lawmakers and staff have worked hard to achieve a good CBO score.

CBO scores have inherent limitations — notably, the discipline (or lack thereof) on the part of lawmakers to adhere to a bill’s parameters. Two years ago this month, the Wall Street Journal endorsed a Medicare “doc fix” bill that increased the deficit by more than $140 billion in its first decade alone. In doing so, the editorial page argued that Congress’ “cycle[s] of fiscal deception” required a return to “honest budgeting,” stopping budget games by making spending increases more transparent.

Given this history, one question naturally follows: Does the American Health Care Act engage in similar cycles of fiscal deception likely to bust future budgets? Many signs point to yes. First, the bill expands access to Obamacare’s subsidy regime for calendar years 2018 and 2019. CBO believes the bill will reduce entitlement spending only slightly in its first few fiscal years — by $29 billion next year, and $42 billion the following — as the individual mandate’s repeal will cause some to drop coverage.

But in fiscal year 2020 — when the Obamacare entitlements would end and the new tax credit would begin — the bill assumes a massive $100 billion net reduction in entitlement spending. Net entitlement spending would fall still further, to $137 billion in fiscal year 2021, which begins on October 1, 2020, mere weeks before the presidential election.

With the bill’s major “cliff” in entitlement spending coming in a year divisible by four, it’s fair for conservatives to question whether these reductions will ever go into effect, and the promised deficit reduction will ever be achieved. If the “transition” provisions end up extended in perpetuity, conservatives will end up with “Obamacare Max” — an expanded Obamacare subsidy regime available to millions more individuals.

Second, the bill does not even attempt to undo the fraudulent entitlement accounting created by Obamacare. Section 223 of the reconciliation measure passed in January 2016 transferred $379.3 billion of that bill’s deficit savings back to the Medicare trust fund. That provision represented a recognition that, as vice presidential candidate Paul Ryan said on the campaign trail back in August 2012, “President [Obama] took $716 billion from the Medicare program—he raided it—to pay for Obamacare.” Not only does Speaker Ryan’s bill not attempt to make Medicare whole from the Obamacare “raid,” the managers amendment released Monday evening consumed much of the bill’s supposed savings.

Third, while conservatives have focused on the bill’s tax credits as a new entitlement, the measure effectively creates a second new entitlement, this one for insurers. CBO’s estimate of possible premium reductions by 2026 hinged in no small part on creation of a “Patient and State Stability Fund,” and use of grants from the fund to subsidize insurers’ high-cost patients. However, the bill stops federal payments to the “Stability Fund” in 2026—and therefore the score does not take into consideration that this $10-15 billion annual bailout fund for health insurers could become permanent.

Fourth, reports suggest that House lawmakers are relying upon a bipartisan group in the Senate to repeal outright Obamacare’s “Cadillac tax” (delayed until 2026 in the most recent bill), which would worsen deficits in future decades. Leadership sources pushing this move would then argue that the bill blows a hole in the budget not because it spends more money, but because it reduces revenue.

However, the 2016 reconciliation bill repealed all of Obamacare’s tax increases and its new entitlements, while leaving the deficit virtually unchanged over the next 50 years. By contrast, if lawmakers create two entitlements — the new tax credit regime and the “Stability Fund” — while also repealing the “Cadillac tax,” they will create a fiscal hole likely to reach into the trillions. To borrow a phrase, the American Health Care Act doesn’t have a revenue problem, it has a spending problem.

Budgetary “out-years” gimmicks brought us the Medicare “doc fix” mess in the first place, which should embolden conservatives to recognize fiscal chicanery and legerdemain when they see it.

Positive Medicaid reforms notwithstanding, the structure on which the American Health Care Act is based does fiscal responsibility a disservice. A conservative-controlled Congress can and should do better.

This post was originally published at the Washington Examiner.

No, Medicare Enrollees Haven’t “Earned” All Their Benefits

In his interview with 60 Minutes that aired Sunday night, Speaker of the House Paul Ryan made a compelling case for reforming Medicare. But in trying to make a political point about the need to maintain the status quo for beneficiaries in retirement, Speaker Ryan actually understated the problems the program faces:

We have to make sure that we shore this program up. And the reforms that we’ve been talking about don’t change the benefit for anybody who is in or near retirement. My mom’s now enjoying Medicare. She’s already retired. She earned it. But for those of us, you know, the X-Generation on down, it won’t be there for us on its current path. So we have to bring reform to this program for the younger generation, so that it’s there for us when we retire, and so that we can keep cash flowing to current generations’ commitments. And the more we kick the can down the road, the more we delay, the worse it gets.

There’s just one problem with this explanation: the benefits Ryan claimed his mother’s generation “earned” don’t begin to match the money paid into the system.

Money In Doesn’t Equal Money Out

Strictly speaking, the benefits Ryan’s mother receive are “earned,” in the sense that beneficiaries must pay into the Social Security system for 40 quarters to qualify for Medicare eligibility. But in the actuarial sense of “earned” benefits—“I’m only getting back all the money I paid in during my working life”—most beneficiaries receive benefits that vastly exceed their payroll tax contributions to Medicare.

In its 2015 document highlighting the long-term budget outlook, the Congressional Budget Office (CBO) conducted an analysis of average payroll taxes paid and benefits received. It found the latter exceeded the former by a wide margin—a margin that will grow over time:

Under the assumption that all scheduled benefits are paid, real average lifetime benefits (net of premiums paid) for each birth cohort as a percentage of lifetime savings will generally be greater than those for the preceding cohort. For example, benefits received over a lifetime are projected to equal about 7 percent of lifetime earnings for people born in the 1940s, on average, but 11 percent for people born in the 1960s. By contrast, real average lifetime payroll taxes relative to lifetime earnings will rise from 2 percent in the 1940s cohort to almost 3 percent for the 1960s cohort.

Both the text and accompanying chart come with a significant caveat: Medicare payroll taxes fund only a share of overall Medicare spending, and that share has declined significantly in recent years—from 67 percent in 2000 to about 40 percent last year. General revenue covers a growing (currently about 47 percent) percentage of Medicare’s finances; individuals do pay a portion of the federal government’s general revenue through income taxes, but it’s harder to differentiate what portion of an individual’s income taxes fund Medicare in any given year.

Regardless, the CBO analysis confirms that benefits paid out continue to rise thanks to skyrocketing health costs—and that taxes paid into the system cannot keep up. A similar CBO analysis conducted earlier this year for the 2016 long-term budget outlook likewise determined that Social Security benefits paid out will exceed taxes taken in for most seniors. (Unlike Medicare, Social Security is funded entirely by payroll taxes, so the gap between benefits and taxes is smaller, but still significant.) Both CBO reports echo research undertaken by the Urban Institute, whose most recent analysis found that a couple earning average wages who retired last year will receive $1,038,000 in Medicare and Social Security benefits after paying in only $683,000 in payroll taxes.

We Have To Fix Our Medicare System

Phasing in changes like premium support for Medicare makes both political and policy sense—to give Americans time to adjust and plan for major changes to entitlement programs, and to try and head off campaigns designed to scare current seniors. On the other hand, CBO believes the premium support proposal included in House Republicans’ budget this year would save seniors 6 percent on out-of-pocket health costs annually—raising the obvious question of why seniors should be shut out of the opportunity to save money.

No matter the details, the fact that most seniors receive more in benefits than they paid in payroll taxes speaks to the urgent need to right-size our entitlements. Regardless of how we do it, our nation will be much better off if we confront these problems sooner rather than later. Because continuing our Lake Wobegon system—in which everyone receives more than they paid in—will guarantee a fiscal crisis of epic proportions.

This post was originally published at The Federalist.

Totaling Up $170.8 BILLION in Obamacare Bailouts

Obamacare has been in the news — and the courts — quite a lot recently. While much of the press attention has focused on the controversial contraception mandate, a potentially bigger issue remains largely unreported — namely, that the Obama administration has set in train an unholy trinity of bailouts that could pay health-insurance companies $170.8 billion in the coming decade.

Much of the litigation surrounds the legality — or more specifically, the lack of legality — of these bailouts. On May 12, the administration lost a case in United States District Court, U.S. House of Representatives v. Burwell, in which Judge Rosemary Collyer ruled that payments to insurers for cost-sharing subsidies without an express appropriation from Congress violated the Constitution. And recently, multiple insurers have filed suit against the government in the Court of Federal Claims, seeking payment for unpaid “risk corridor” funds, designed to cushion insurers from incurring major losses, or major gains, during the exchanges’ first three years.

What exactly do all these Obamacare lawsuits entail? And how much taxpayer money is the Obama administration shoveling to insurers in an attempt to keep them participating in its moribund exchanges? Herewith, a 101 tutorial on the more than $170 billion in Obamacare bailouts.

RISK CORRIDORS

What’s the issue? Risk corridors were one of two temporary programs (I discuss the other below) designed to provide stability to the law’s exchanges in their first years. From 2014 through 2016, the risk-corridor program is designed to minimize large insurer losses, as well as large insurer profits. Initially, the administration claimed risk corridors would be implemented in a budget-neutral manner — that is, outgoing payments to insurers with losses would equal incoming payments from insurers with gains. But the healthcare.gov catastrophe, coupled with policy changes unilaterally made in the fall of 2013, caused the Centers for Medicare and Medicaid Services (CMS) to float the idea of using taxpayer funds in risk corridors to offset insurer losses — in other words, bail them out.

How much has the government paid? Nothing, thankfully — at least not yet. Fearful that the administration could utilize risk corridors to implement a taxpayer-funded bailout of insurers, Congress passed in December 2014 (and subsequently renewed this past winter) appropriations language that prevents CMS from using additional taxpayer funds to pay insurers’ risk-corridor claims.

How much could the government pay? In 2014, insurers submitted $2.87 billion in risk-corridor claims, but because insurers with gains paid in only $362 million, insurers with losses received only that much in payments — approximately 12.6 percent of the requested funds. Last week insurers in North Carolina and Oregon sued to recover their unpaid risk-corridor funds, following a $5 billion class-action suit filed in February by an Obamacare co-op insurer in Oregon. While CMS has not yet settled those lawsuits seeking unpaid risk-corridor funds, in November it issued a policy memo stating that those unpaid funds represent an obligation of the federal government. Insurer losses more than doubled last year when compared with the 2014 losses.

Although CMS has not yet released data on risk-corridor claims for 2015 or 2016, it seems likely that risk corridors will incur losses similar to those for 2014. A McKinsey study released last month, “Exchanges Three Years In,” found that insurer losses more than doubled last year when compared with the 2014 losses — making $2.5 billion in claims the likely low estimate for risk corridors. A conservative assumption would estimate a total of $7.5 billion in unpaid risk-corridor claims — $2.5 billion each for 2014, 2015, and 2016.

Although the appropriations language in place currently prevents CMS from using taxpayer funds for risk-corridor claims, it is possible — even likely — that the administration could attempt to settle the insurer lawsuits as one way of getting bailout funds to insurers. Any settled lawsuits would be paid from the Judgment Fund of the Treasury, not out of a CMS budget account, thus circumventing the appropriations restrictions.

REINSURANCE

What’s the issue? The second Obamacare temporary stabilization program, called reinsurance, requires “assessments” — some would call them taxes — on all employer-provided health-insurance plans. These assessments are designed to 1) reimburse the Treasury for the $5 billion cost of a separate reinsurance program that operated from 2010 through 2013 and 2) reimburse insurers with high-cost patients from 2014 through 2016.

How much has the government paid? In 2014, insurers received nearly $8 billion in payments from the reinsurance “slush fund.” The administration still holds nearly $1.7 billion in funds from the 2014 benefit year — money that will no doubt get shoveled insurers’ way as well. While the law explicitly stated that the Treasury should get reimbursed for its $5 billion before insurers receive payments from the reinsurance fund, the Obama administration has implemented the law in the exact opposite manner — prioritizing insurer bailouts over repaying the Treasury. The Congressional Research Service (CRS) has stated that this action represents a clear violation of the text of the Obamacare statute. The Obama administration chose to violate the plain text of the law and prioritize claims to insurers over the statutory requirement to repay taxpayers.

How much could the government pay? Between 2014 and 2016, insurers appear likely to receive the full $20 billion in reinsurance payments provided for under the law. On the other hand, the Treasury will receive far less than the $5 billion it was promised, because the Obama administration chose to violate the plain text of the law and prioritize claims to insurers over the statutory requirement to repay taxpayers.

COST-SHARING SUBSIDIES 

What’s the issue? The law requires insurers to reduce cost-sharing (such as deductibles and co-payments) for certain low-income individuals with incomes under 250 percent of the federal poverty level. While Section 1402 of the law authorized the Departments of the Treasury and Health and Human Services to remit payments to insurers for the cost of these discounts, it did not include an explicit appropriation for them. Judge Collyer’s May 12 ruling, though stayed pending appeal by the administration, prohibits future spending on cost-sharing subsidies by the federal government unless and until Congress enacts an explicit appropriation.

How much has the government paid? In fiscal year 2014, insurers received $2.1 billion in cost-sharing subsidies. In fiscal 2015, the cost-sharing subsidies totaled $5.1 billion, and this fiscal year, spending on the subsidies will total an estimated $6.1 billion — for a total paid out (through this September 30) of $13.9 billion. How much could the government pay? If Judge Collyer’s ruling is not upheld on appeal, this bailout program — unlike the other two — will continue without end. According to the Congressional Budget Office, spending on cost-sharing subsidies will total $130 billion over the coming decade, unless halted by a judicial ruling — or unless a new administration decides it will not spend funds that have not been appropriated by Congress.

There you have it. Combine a total of $33.3 billion paid to date ($20 billion in reinsurance plus $13.3 billion in cost-sharing subsidies) with potential future bailouts of $137.5 billion ($7.5 billion in risk-corridor funds plus an additional $130 billion in cost-sharing subsidies) and you come up with a not-so-grand total of $170.8 billion in taxpayer-funded Obamacare bailouts to insurers.

The scope of both the bailouts and Obamacare’s failures looks truly staggering. Despite literally billions of dollars coming from three separate bailout programs, insurers still cannot make money selling Obamacare products. Most insurers continue to lose funds hand over fist, while some, such as UnitedHealthGroup, the nation’s largest health insurer, have all but exited the exchanges entirely.

The scope of the bailouts put the lie to Joe Biden’s claims just prior to Obamacare’s passage, when he claimed to ABC News, “We’re going to control the insurance companies.” Au contraire, Mr. Vice President. By requiring more than $170 billion in bailouts just to keep the sputtering exchanges afloat, the insurance companies are controlling you — and us, the taxpayers, as well.

This post was originally published at National Review.

Our Entitlement Problems in One CBO Chart

The Congressional Budget Office released its annual update last week regarding the long-term budget outlook. In that document, one chart in particular demonstrated the financial difficulties caused by an entitlement system that has promised Americans more in benefits than it can deliver.

Figure 2-5, on Page 47 of the CBO report, analyzes the average lifetime Medicare benefits and taxes for cohorts of the population based on their decades of birth. Individuals born in the 1940s will receive, on average, Medicare benefits equal to about 7% of their lifetime earnings. Those born in the 1960s will receive lifetime Medicare benefits equal to about 11% of their average lifetime earnings, and those born in the 1950s get benefits equal to about 9% of their earnings. In all three cases, the lifetime benefits received from Medicare will vastly exceed the lifetime taxes paid in. Most cohorts, CBO said, will pay about 2% of taxes relative to their lifetime earnings.

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These findings echo reports by Eugene Steuerle and colleagues at the Urban Institute analyzing Social Security and Medicare benefits over a lifetime. Their most recent series of estimates, released in November 2013, found that a two-earner couple in which both make average wages and turn 65 in 2015 will receive more than three times as much in lifetime Medicare benefits ($427,000) as they paid over their career in Medicare taxes ($141,000).

It’s noteworthy that the dedicated Medicare payroll tax is not the program’s only source of financing. While Medicare Part A (hospital insurance) is largely funded through the direct payroll tax, general government revenues fund Medicare Part B coverage of physician services and Part D coverage of prescription drugs. In other words, most individuals fund Medicare through revenue sources beyond their payroll taxes—namely the income tax— even if quantifying the size of that contribution proves more difficult.

Still, the CBO chart illustrates two major forces squeezing Medicare: Rising health costs and longer life spans are increasing the benefits paid, and average promised benefits do not remotely equate to average contributions made—undermining the principle of a social insurance model. With about 10,000 baby boomers on track to retire every day for a generation, these two trends will define our fiscal future. Policy makers would do well to address them sooner rather than later.

This post was originally published at the Wall Street Journal’s Think Tank blog.

Hillary Clinton’s Obamacare “Fix”

In a recent interview with the Des Moines Register, Hillary Clinton outlined several elements of Obamacare that she said she would seek to change as president. Her proposals illustrate how the fiscal impact of the law could increase significantly from what was expected when the legislation passed in March 2010.

Among the things Mrs. Clinton cited was “how to fix the family glitch.” In short, if an individual qualifies for “affordable” health insurance through an employer, that person’s family will not qualify for federal insurance subsidies–even if the employer does not offer family coverage or if family coverage is unaffordable for the household.

Supporters of the health-care law may call this a “glitch,” but it is far from an unintended consequence. This provision has worked exactly how Congress wrote it into the Affordable Care Act. As I noted in an earlier Think Tank post, the Joint Committee on Taxation outlined the specifics behind this policy in a footnote on Page 33 of a 157-page summary of the law released the week of its passage. While some congressional Democrats have attempted to argue since then that the provision, as codified by the Internal Revenue Service, was “simply incongruent” with the text, or a “wrong interpretation of the law,” the legislative history indicates otherwise. The provision may have harsh consequences for affected families, but its inclusion was deliberate.

When Congress considered the legislation in 2010, the bill needed to adhere to President Barack Obama’s September 2009 pledge that it would “cost around $900 billion over 10 years.” But to keep the total cost of insurance subsidies—the “gross cost of coverage provisions” in Table 4 here—under $1 trillion, lawmakers made numerous tough choices. For instance, Congress delayed the start of subsidized insurance from January 2013 to January 2014. Congress increased Medicaid payment rates to improve access—but let that increase expire after two years. To pay for higher levels of upfront spending on insurance subsidies, Congress included provisions that slow their growth after 2019—a back-dated reckoning that future Congresses, and families, will have to contend with. And Congress passed—whether lawmakers knew it or not—the “family glitch” provision.

As I wrote in January, undoing all these fiscal constraints will cost money. Mrs. Clinton and other supporters of the law have wish lists of enhanced benefits, but proposals to pay for this new spending have been scarce. Moreover, to the extent that skeptics have likened Obamacare to a subprime mortgage—with “teaser” provisions passed in 2010 and a balloon payment still to come—the long lists of additional spending proposals, with few instances of budgetary restraint, will reinforce those comparisons.

This post was originally published at the Wall Street Journal’s Think Tank blog.

“Doc Fix” Bill Makes Things Worse

Proponents of the “doc fix” legislation the House passed before Congress’s Easter recess have argued that it would permanently solve the perennial issue of physician reimbursements in Medicare. But an analysis by Medicare’s nonpartisan actuary all but cautions: “Not so fast, my friends!

The estimate of the legislation’s long-term impacts by Medicare’s chief actuary is sober reading. The legislation provides for a bonus pool that physicians can qualify for over the next 10 years but applies only in 2019 to 2024. The budgetary “out-years” provide for minimal increases in reimbursement rates. Beginning in 2026, physicians would receive a 0.75 percent annual increase if they participate in some alternative payment models or a 0.25 percent annual increase if they do not. Both are significantly lower than the normal rate of inflation.

Such paltry increases could have daunting effects over time. “We anticipate that payment rates under [the House-passed bill] would be lower than scheduled under the current SGR [sustainable growth rate formula] by 2048 and would continue to worsen thereafter,” the report said. By the end of the 75-year projection, physician reimbursements under the House-passed bill would be 30% lower than under the SGR. Critics have called the current system unsustainable, but over time the House bill’s “fix” would result in something worse.

The actuary said that the inadequacies of the House-proposed payment increases “in years when levels of inflation are higher.” Under the House-passed bill, physicians would receive a 2.3% increase in reimbursements over a three-year period. According to the Bureau of Labor Statistics, the inflation rate was 11.3% in 1979, 13.5% in 1980, and 10.3% in 1981. If high inflation returned, doctors could effectively receive a paycut after inflation.

While physician groups are clamoring to avoid the 21% cut that would take effect this month if some sort of “doc fix” is not enacted, the House’s “solution” could result in larger real-term cuts in future years. Medicare’s chief actuary explains the results of these reimbursement changes over time:

“While [the House-passed bill] addresses the near-term concerns of the SGR system, the issues of inadequate physician payment rates are ultimately greater. . . . [T]here would be reason to expect that access to physicians’ services for Medicare beneficiaries would be severely compromised, particularly considering that physicians are less dependent on Medicare revenue than are other providers, such as hospitals and skilled nursing facilities.”

In sum, “we expect that access to, and quality of, physicians’ services would deteriorate over time for beneficiaries.”

The House “doc fix” legislation involved increasing the deficit by $141 billion, purportedly to solve the flaws in Medicare’s physician reimbursement system. But Medicare’s actuary thinks this legislation will make the long-term problem worse. When will Congress figure out that if you’re in a fiscal hole, it’s best to stop digging?

This post was originally published at the Wall Street Journal’s Think Tank blog.

At What Price Medicare “Reform?”

The Congressional Budget Office has released its score of the Medicare “doc fix” legislation scheduled for consideration Thursday in the House. Among other things, the score provides some sense of the difficulty in enacting reforms to improve Medicare’s solvency.

CBO projected that the bipartisan legislation to repair Medicare’s physician payment structure would add $141 billion to the deficit. As I wrote in an earlier post, Congress paid for temporary patches in the past in part by cutting spending and in part by planning on bigger payment reductions in future years. While the legislation’s prospective increases in payment levels would be paid for, the future payment reductions already on the books would not be covered, thus raising the deficit. That unpaid-for increase in Medicare spending would also raise the basic Medicare Part B monthly premium by $10 monthly in 2025, CBO concluded.

The bill would make two structural changes to Medicare. CBO found significant savings—more than $34 billion—from reduced subsidies for higher-income earners. But the legislation’s reforms to Medigap supplemental insurance produced comparatively paltry savings: $400 million over a decade. The smaller savings is a result of legislators delaying the Medigap changes until 2020 and watering down the proposed cost-sharing required of Medigap enrollees.

CBO analyzed the bill’s costs and fiscal impact in its second decade, but the budget scorekeepers did not say the bill would reduce the deficit in the budgetary “out-years.” Compared with current law, the bill would increase the deficit, the agency said. And when compared to “freezing Medicare’s payment rates for physicians’ services,” CBO said, “the legislation could represent net savings or net costs in the second decade after enactment, but the center of the distribution of possible outcomes is small net savings.” In other words, even if one considers the scheduled reductions in future payments budgetary gimmicks that will never happen–and thus that they should be disregarded–the bill might not reduce the deficit, and if it did the budgetary savings would be very small.

Medicare needs more than very small savings to remain viable for the long term. The program’s Part A trust fund has run deficits of more than $120 billion over the past six years. And Medicare’s problems will only increase: Urban Institute projections indicate that a married couple earning average wages that retires this year will receive more than three times as much in benefits—$427,000—over their lifetime as they have paid in Medicare taxes. If the price of reforming Medicare is raising the deficit by $141 billion, how much more “reform” can Medicare withstand?

This post was originally published at the Wall Street Journal’s Think Tank blog.

The House “Doc Fix” and the Obama Budget

Last month, in writing about how the president’s budget would forestall changes to entitlements for several years, I said that while the budget “would include some modest changes to Medicare benefits, the overall document postpones most of the fiscal pain until after President Barack Obama leaves office.” The same might be true of bipartisan Medicare legislation that addresses physician payments.

House leaders filed “doc fix” legislation Thursday afternoon, but they have not yet released the legislative language surrounding the parts of the bill that would be paid for. A summary circulating among lobbyists in Washington suggests as one of the “pay-fors” a Medicare Advantage timing shift—a budget gimmick that would shift plan payments into a future fiscal year, masking overall Medicare spending levels.

The document also discusses more substantive changes to the Medicare program: Federal Part B and Part D subsidies would be reduced for individuals with incomes greater than $133,000. And first-dollar coverage for new beneficiaries purchasing supplemental coverage—which studies have shown encourages seniors to over-consume care–would be limited.

These changes may start to address Medicare’s structural shortfalls, but they seem relatively paltry next to some of the Obama administration’s budget proposals. The president’s plan proposed increasing the Medicare Part B deductible and introducing home health co-payments—actions that could reduce incentives for over-consumption of care and crack down on fraud, a particular problem in the home health program. But while the president’s proposed changes would not take effect until 2019, the House proposal would delay them one additional year, until 2020.

Demographics will define our fiscal future for the generation to come. The Congressional Budget Office noted this year that Social Security, health programs, and interest payments represent 84% of the increase in federal spending over the coming decade, largely because an average of 10,000 baby boomers will retire every day. Yet the House legislation could end up exempting from any structural reforms the more than 16 million individuals forecast to join Medicare by 2020.

Unsustainable trends will, at some point, give out. As I wrote last month, putting dessert before spinach by kicking tough choices to future political leaders might lead to short-term political gains but could also produce long-term fiscal and political pain. And when the fiscal reckoning occurs, voters are not likely to look kindly on those who created the problems.

This post was originally published at the Wall Street Journal’s Think Tank blog.

Paying for the Medicare “Doc Fix”

House members are working on legislation to provide a permanent repeal of provisions capping Medicare reimbursements to physicians. As past debates have shown, failure to identify spending cuts to offset the pay increase to doctors would significantly impact seniors’ Medicare premiums.

Legislative language has yet to be released, but press reports have indicated the outlines of a potential agreement between House Speaker John Boehner and Minority Leader Nancy Pelosi. The proposal is expected to permanently repeal the sustainable growth rate (SGR) mechanism established in 1997 for setting physician payments and overall physician spending within Medicare. After only a few years, spending began to exceed the SGR spending targets, prompting Congress to pass a series of bills—known as the “doc fix”–adjusting the targets upward for short periods.

In general, Congress financed these short-term doc fixes by reducing spending elsewhere in the budget. More than $165 billion worth was covered this way. But lawmakers used two statutory mechanisms to lower the cost of these short-term spending bumps and promised to recover the remaining costs in the future. Each time it has come up, Congress has kicked the proverbial can down the line.

When it comes to physician payment, the agreement being negotiated by the congressional leaders is expected to do two things: First, it would fill in the shortfall from repeated budgetary gimmicks. Maintaining flat payment rates for the future, rather than letting the SGR cuts take effect, would cost $137.4 billion, according to the Congressional Budget Office. This would not be paid for but would be absorbed into the deficit. The second part of the agreement, which provides for modest increases in physician payments in the coming years, would have a net cost of $37.1 billion, according to CBO. This increase in spending would be paid for.

One ramification of the proposed $137 billion increase in deficit spending: Seniors would fund a significant portion. As CBO noted in its 2009 score of an earlier, unsuccessful SGR repeal bill: “Beneficiaries enrolled in Part B of Medicare pay premiums that offset about 25 percent of the costs of those benefits. . . . Therefore, about one-quarter of the increase in Medicare spending would be offset by changes in those premium receipts.”

The House Republican leadership is well aware of the premium effects of an unpaid-for SGR repeal. When then-Speaker Pelosi brought an unpaid-for SGR repeal bill to the House floor in November 2009, then-Minority Leader Boehner called it an “absolute train wreck,” because it “forces seniors to pay higher premiums.” All but one House Republican voted against the legislation—largely because it did not include spending cuts to pay for the repeal.

It remains unclear how many House Republicans today might change their position from 2009, or what their public justification for doing so would be. What is clear is that any unpaid-for legislation would have a fiscal impact on America’s seniors as well as the federal budget.

This post was originally published at the Wall Street Journal’s Think Tank blog.