July 3, 2011 | Commentary on Obamacare, Health Care Reform

Obama’s Medicare Plan is an Open Secret

President Obama’s critics, who keep saying they want to save Medicare and the country from fiscal disaster, complain that Obama and his allies don’t have a Medicare plan. They’re dead wrong.

In fact, the president already enacted his plan. It’s called the Patient Protection and Affordable Care Act of 2010. And in 165 provisions, it makes some big Medicare changes. One could even say that Obama has “ended Medicare as we know it.”

Oh, you missed that? Here’s how.

The president’s Medicare plan makes record-breaking cuts in payments to hospitals, nursing homes, home health-care agencies, Medicare Advantage plans and even hospice programs. Chief Actuary Richard Foster, the man who keeps tabs on Medicare’s finances, says these payment reductions will yield an estimated $575 billion of “savings” in the first 10 years.

Sounds impressive. But there’s a catch.

There’s no guarantee that those “savings” will go back into Medicare to shore up the program’s finances. No, that money is to be used to fund the legislation’s other programs. Meanwhile, Foster says, the payment cuts will cause about 15 percent of Medicare providers to go into the red within the first 10 years, “jeopardizing” seniors’ access to care.

It gets worse. If the president’s Medicare payment cuts continue, the number of Medicare providers who find themselves in the red will jump to 25 percent by 2030, when the Medicare rolls reach an esti�mated 80 million beneficiaries. Well before that time, the Medicare actuary projects that Medicare payment rates will fall below Medicaid levels. That would result in severe reductions in seniors’ access to care.

Medical professionals will try to avoid treating patients when their government reimbursement doesn’t even cover their costs. It’s no surprise that the Kaiser Family Foundation recently found that about one-third of Medicaid patients had trouble finding a doctor who would take them. You can’t get more of anything by gradually paying less and less for it.

And then the president’s Medicare plan gets even more interesting. Before the legislation “ended Medicare as we know it,” the program was often described as an “open-ended” entitlement. Whatever the demand for medical services in any given year, taxpayers simply paid the tab. Well, whether you think this was a good thing or a bad thing, it’s a thing of the past.

The Affordable Care Act imposes a “hard cap” on the annual growth of Medicare spending, and ties that growth to inflation and the growth of the economy. The problem is that Medicare spending growth has routinely outpaced both, meaning doctors and other medical professionals — already subject to Medicare price controls — are in for even deeper Medicare payment cuts.

To secure the Medicare cuts necessary to meet spending targets, the new law creates an Independent Payment Advisory Board, a politically appointed panel of 15 bureaucrats. Their job: make recommendations to cut Medicare payments. In fact, unless Congress enacts an alternative plan to cut Medicare spending by the required amount, the secretary of Health and Human Services is authorized to enforce the board’s recommended cuts without further congressional approval.

Liberals in Congress are suddenly getting nervous about this board they jammed down our throats last year. Obama, however, wants to make it even stronger, and liberals in academia see it as a solution to Medicare’s looming insolvency. But except for a big toolbox of axes, cleavers, knives and scalpels, the board offers no kinder and gentler market mechanisms that would alter economic incentives, or change the conditions of supply and demand for medicine to control costs.

Once the bureaucratic slicing and dicing starts, seniors are going to learn a lot more about the president’s approach to controlling Medicare costs.

Traditional Medicare is a fee-for-service system, meaning that doctors and other medical professionals are paid an administrative and controlled price for each medical service they provide. The vast majority of seniors covered under it are mistaken if they think this arrangement will be preserved.

The Affordable Care Act will create new payment systems and conditions for reimbursement, moving away from traditional fee for service in favor of putting doctors and other medical professionals into “capitated” or salaried payment systems with new reporting requirements. With a looming doctor shortage, it’s hard to imagine how these developments will improve the environment for medical practice.

If the goal is to achieve better value for the Medicare dollars, there is a better way to do it. Instead of empowering the Medicare bureaucracy, especially the Independent Payment Advisory Board, Congress should empower the patients themselves to control both the dollars and the key decisions, as they do in the Medicare drug program today.

This, according to Dr. Daniel Johnson, former president of the American Medical Association, is the right policy. It puts the patient in the driver’s seat, with the doctor riding shotgun.

Robert Moffit is a senior fellow at The Heritage Foundation.

About the Author

Robert E. Moffit, Ph.D. Senior Fellow
Center for Health Policy Studies

First appeared in The Boston Herald