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Obama’s Medicare cuts, explained

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Politics,Beltway Confidential,Philip Klein

President Obama and his campaign have offered a series of defenses of the roughly $700 billion in Medicare cuts that he enacted as part of his national health care law. Briefly, they are: the cuts only deal with overpayments to private insurers and providers; the cuts do not affect benefits; the cuts extend the solvency of Medicare; and Mitt Romney’s new running mate, Rep. Paul Ryan, R-Wis., included the cuts in his own budget. Let’s take a moment to unpack each of these.

At the outset, let me say that I don’t oppose cutting Medicare, because I believe we’re going to need to reduce spending on the program if we’re going to do something about the program’s long-term health. But if Democrats are going to attack Romney and Ryan for wanting the end the program, it’s worth at least being honest about what Obamacare actually does.

A lot of the cuts in the health care law come out of Medicare Advantage, which is the part of Medicare that allows beneficiaries to buy into privately-administered health care plans. Obama and his defenders speak as if Medicare Advantage doesn’t count as Medicare, but as the official website states, “A Medicare Advantage Plan (like an HMO or PPO) is another Medicare health plan choice you may have as part of Medicare.” Last year, 11.5 million Americans, or about a quarter of all Medicare beneficiaries, were enrolled in a Medicare Advantage plan, according to the Kaiser Family Foundation. Democrats argue that the program is too costly because the government is subsidizing private insurers, and all Obamacare is doing is cutting overpayments. But in many cases, the reason why Medicare Advantage plans are more expensive is that they offer more generous benefits than traditional Medicare. When the government reduces payments, enrollees will receive fewer benefits.

The other set of cuts Obamacare makes is to health care providers such as hospitals and nursing facilities. Obama and his allies insist that these cuts won’t affect benefits for Medicare participants and that providers will enjoy a flood of new customers, because Obamacare expands health insurance coverage by about 30 million. But it isn’t as if one offsets the other. If the government slashes payment rates and providers are losing money on Medicare patients, a lot of providers are simply going to leave the program and focus on other patients. In other words, seniors may have the same benefits on paper under Obamacare, but in practice they’ll have less access to health care services.  And that isn’t me talking. In the 2012 trustees’ report for the program, Richard Foster, the chief actuary at the Centers for Medicare and Medicaid Services, predicted:  “Without unprecedented changes in health care delivery systems and payment mechanisms, the prices paid by Medicare for health services are very likely to fall increasingly short of the costs of providing these services. By the end of the long-range projection period, Medicare prices for hospital, skilled nursing facility, home health, hospice, ambulatory surgical center, diagnostic laboratory, and many other services would be less than half of their level under the prior law. Medicare prices would be considerably below the current relative level of Medicaid prices, which have already led to access problems for Medicaid enrollees, and far below the levels paid by private health insurance. Well before that point, Congress would have to intervene to prevent the withdrawal of providers from the Medicare market and the severe problems with beneficiary access to care that would result.”

Obama has also argued that these cuts extended the solvency of Medicare. The problem is that the Medicare savings cannot simultaneously be used to extend the solvency of Medicare while also being used to help finance Obamacare. So as I wrote yesterday, if Obama wants to claim he’s strengthening Medicare through his cuts, then Obamacare is running a $600 billion deficit over the next decade. Or, as the Congressional Budget Office has put it: “To describe the full amount of (Medicare Health Insurance) trust fund savings as both improving the governments ability to pay future Medicare benefits and financing new spending outside of Medicare would essentially double-count a large share of those savings and thus overstate the improvement in the governments fiscal position.”

All of that said, it’s true that Ryan included these Medicare cuts in the budget he authored for the House of Representatives. But it’s also true that he voted against them on several occasions when he voted to repeal all of Obamacare. So what gives? Ultimately, it comes down to a baseline accounting issue. Because Obamacare is the law of the land, the current baseline of the CBO (against which budget proposals are measured) assumes that it will be implemented. Under the CBO’s latest estimates, Obamacare cuts the deficit by about $100 billion from 2013 through 2022, because the Medicare cuts and tax increases exceed the $1.7 trillion increase in spending. But if you repeal all of the spending in Obamacare, but keep the Medicare cuts, it cuts the deficit by about $600 billion. Ryan’s primary Medicare reforms (which transition Medicare into a system in which individuals could choose to remain in the traditional program or use government subsidies toward the purchase of private plans), wouldn’t kick in for a decade. So, he maintained Obamacare cuts as part of his budget because it improved the numbers. Now, Ryan has joined the Romney ticket, and Romney has promised to restore all of the Medicare funding. So, he’ll have to find other ways to save money, or else his budget would have less deficit reduction than the Ryan plan. In my column today, I argue that Romney and Ryan should give Medicare beneficiaries more choices sooner, rather than waiting a decade for their reforms to kick in.

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