President Obama's Medicare cuts don't cut it

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President Barack Obama delivers remarks to students on his 2013 budget at the Northern Virginia Community College in Annandale, Virginia on Feb.13, 2012.

Article Highlights

  • Cumulative effect of #ObamaCare and 2013 budget would drive providers out of Medicare, cutting critical care for seniors

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  • Competitive bidding can save more money than the president’s budget proposals without endangering the care of millions of seniors

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  • Competitive bidding that includes all Medicare plans could save $339 billion over a decade

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The president took an extra week to develop his budget, but the extra time was apparently not enough to yield Medicare policies that could produce real savings. The 2013 budget released today relies on the same tired proposals that we have seen previously. Provider payment cuts, delicately referred to as “modifications,” account for $267 billion in savings over the next decade. For a program that will cost taxpayers more than $6.7 trillion, this is a disappointingly modest savings target—and even so, it is not likely to be met.

We have eight years of proof that Congress will never allow those payment reductions to go into effect. Unmentioned in the budget is the little matter of the 27.4% reduction in Medicare payments to physicians, scheduled to take effect on March 1. Whenever physician payments grow more quickly than the economy, Medicare is required to cut their fees using the “sustainable growth rate” formula. However, Congress has overridden those formula-driven payment cuts every year since 2003 and the uncollected bills have mounted up. It is now ludicrous to think that Congress could ever allow such a large payment reduction to take effect. It is equally ludicrous to think that Congress would enforce sizeable reductions in payments to hospitals and other health facilities on top of the hundreds of billions in reductions already levied on them by the Affordable Care Act (ACA).

"Competitive bidding can save more money than the president’s budget proposals without endangering the care of millions of seniors." - Joseph AntosBut suppose the implausible happened and Congress accepted the president’s cuts. The cumulative effect of the ACA and the 2013 budget would drive providers out of Medicare, making it increasingly difficult for seniors to get the care they need. Medicare’s actuary reported that in 2019 the ACA reductions by themselves would cause 15 percent of hospitals, nursing facilities, and home health agencies to lose money. Piling on with more cuts will only make the problem worse.

There is a better approach. A report that will be released this week by the American Enterprise Institute finds that competitive bidding can save more money than the President’s budget proposals without endangering the care of millions of seniors. The authors—Roger Feldman of the University of Minnesota, Robert Coulam of Simmons College, and Bryan Dowd of the University of Minnesota—estimate that competitive bidding that includes all Medicare plans could save $339 billion over a decade. That is the approach taken by Sen. Ron Wyden (D-Ore.) and Rep. Paul Ryan (R-Wis.) in their bipartisan Medicare reform proposal.

Better yet, these savings reflect what health plans already say they can do. They are based on the actual bids of Medicare Advantage plans and the actual cost of traditional Medicare to provide full benefits without scrimping on health services. 

The president’s 2013 budget is less a serious policy proposal and more a political statement with misleading numbers mixed in to give it faux credibility.  But the document reflects a long tradition in Washington of using arbitrary cuts in provider payments to claim credit for budget savings that are elusive at best, and that have serious consequences for Medicare beneficiaries. Competitive bidding offers a better solution, but only if we are willing to give it a chance.

Joseph Antos is the Wilson H. Taylor scholar in healthcare and retirement policy at the AEI.

 

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