$700 Billion for a Free Lunch
As a professional economist who writes on health policy, I should probably be inured to claims that one policy or another is a free lunch. Still, I have been shocked by the extent to which some supporters of the ACA (aka "Obamacare") have made such claims. Take, for instance, this "fact check" provided by Reuters listing 6 "myths" about Medicare. There are misleading statements strewn throughout the piece, which all stem from the idea that there is such a thing as a free lunch.
Let's start with "Myth" #3, which is that the ACA cuts $700 billion from Medicare over the next 10 years. This is incontrovertibly true, as the "fact check" itself admits. The interesting thing to me is that the author of the fact check somehow claims that these cuts will actually expand benefits and improve the quality of care. It's probably enough to dismiss this sophomoric thought as unworthy of adult conversation, but it's worth delving a little into the argument.
How will the government cut Medicare so dramatically? The ACA adopts three strategies. First, it will dramatically cut payments to Medicare Advantage providers. Medicare Advantage is the private replacement for Medicare that was authorized by the Republican Congress in 1997 and signed into law by Pres. Clinton. There are now over 10 million people who get their health insurance through a Medicare Advantage plan.
Let's leave aside the relative merits of Medicare Advantage against traditional Medicare. The incontrovertible point is that Medicare Advantage plans will become much less attractive as a result of the ACA's cuts. Elderly people who are accustomed to the benefits such plans provide will no doubt be forced to switch out of their insurance plan. So much for Pres. Obama's famous promise that if you like your insurance, you can keep your insurance.
Second, the ACA will require dramatic payment cuts to doctors. In "Myth" #4, we learn that these cuts will not result in doctors being unwilling to see Medicare patients. As it happens, we have great empirical evidence about what happens when payments to doctors are slashed, and we don't have to look outside the U.S. to find it.
Medicaid, which is the government insurance program for the poor, pays doctors at substantially lower rates than Medicare or private insurance. It is notoriously difficult to find a doctor who actually takes Medicaid. In one 2005 study published in the Journal of the American Medical Association, actors posing as seriously ill Medicaid patients were only able to get a timely doctor appointment 34 percent of the time. The ACA cuts will make Medicare a lot more like Medicaid, dubious "fact checks" aside.
In "Myth" #1, we learn (contrary to reality) that Medicare costs are not really growing all that fast. That anyone, much less a neutral "fact-checker," can make such a claim is frankly shocking. But don't take my word on it -- here's the latest Medicare Trustee's Report if you want nightmares. Medicare is growing so fast in part because the graying of our population (contrary to "Myth" #6, an older population does mean more Medicare costs), and in part because of the development of expensive new medical technologies.
This brings us to the third way that the ACA will cut Medicare -- the 15 member Independent Payment Advisory Board (affectionately known among us health economists as IPAB). The IPAB is President Obama's answer to how he intends to control the growth of Medicare expenditures, though for some reason he hasn't touted it much on the campaign trail. The IPAB is mandated to cut Medicare expenditures, and they have been given a broad set of policy tools to do so. It's not clear yet at this point where or what they will cut, but once they decide what to cut, it will take a two-thirds vote of Congress to override their decisions.
I don't want to give anyone the wrong impression. Medicare needs to be cut. It is on an unsustainable path and will bankrupt the government if it continues on it. We arrive finally at the crux of the disagreement between the parties -- who should decide what to cut? The biggest problem with free lunch thinking, such as the wretched attempt at a "fact check" that I have been discussing, is that it obscures what is fundamentally at stake in the health care debate. Should a small expert board have the power to decide what health care every elderly American has, or should the American people individually have such power?
- Comment (20)
- · Quote
- · UnfollowFollow (3)
Comments:
Re: $700 Billion for a Free Lunch
You just quintupled my knowledge of Medicare. Thanks, Jay--and welcome to Ricochet!
Re: $700 Billion for a Free Lunch
Welcome to Ricochet, Dr. Battacharya!
Here's a video that helps illustrate your point that the ACA cannot both cut Medicare and expand benefits and quality of care. As obvious as it seems, many people have trouble grasping it.
Mar '12
Re: $700 Billion for a Free Lunch
I concur with Peter. I've just learned a whole lot more than I knew about Medicare. Information and insights like this will become increasingly valuable as we approach the election. The ACA is a very complex piece of legislation dealing with an already mystifying system of financing our healthcare services. We have no alternative but to dig in and grasp the details. Thanks, Jay -- and more please!
May '11
Re: $700 Billion for a Free Lunch
the Romney camp absolutely destroyed Politifact for calling their Medicare claims "mostly false"
Re: $700 Billion for a Free Lunch
Many many thanks -- and welcome to Ricochet!
Posts like yours -- simple, clear, logical -- make a major point: people want to understand health care policy, they want to understand entitlement spending and budgeting.
Maybe you and Paul Ryan are onto something.
Mar '11
Re: $700 Billion for a Free Lunch
Thank you Dr. Bhattacharya for this analysis - and welcome to Ricochet! I agree with Rob, we need more posts like this.
One question: the Reuters article claims that the growth in the cost of Medicare on a per enrollee basis is lower than the growth in the cost of private health insurance (and is predicted to continue in that manner).
Is this true? And if so, does that not make it harder to argue for converting Medicare into premium support for private insurance plans?
(As an aside: I am highly in favor of Ryan's plan, but I worry that we breeze over some weak spots which might come back to bite us.)
Edited on August 18, 2012 at 1:12amDec '10
Re: $700 Billion for a Free Lunch
The left has new spin out. Previously, they claimed there were no Medicare cuts. Once Ryan/Romney (RR) made it clear that the cuts were in the ACA, the left then claimed that both RR and the ACA maintained the dollars in Medicare funding (demonstrably untrue; the ACA shifts the dollars over to the uninsured). RR retains the reduction in baseline increases from the ACA, ('cause that's the CBO number they have to use), but the ACA cut it, to effectively apply it to Medicaid and pay for the uninsured. Either way, those dollars were cut from the rate of increase in the baseline for Medicare, by the ACA.
So now? The left is claiming that these $700M/year, $700B for ten years cuts are not being cut from Medicare, but are going to be savings in future Medicare expenditures, through the reduction of Waste, Fraud, and Abuse!
I can't provide a citation, as I only heard this this afternoon, in an interview on Hannity's radio program, but this is what they are trying. Again. How many times has this nonsense been alluded to, without a smidge of actual reduction to WFandA?
Jun '10
Re: $700 Billion for a Free Lunch
From the article:
Wow. Where to begin. I love the phrase "adjustments to payments." Not cuts, just adjustments. Like your boss calling you in and saying "business has been slow lately, so we've decided to adjust your salary."
So Obamacare will adjust payments down by $700 million, but not to worry, this will be meaningless to patients. Pay no attention to the little man behind the curtain.
Just how stupid do they think we are?
Jun '10
Re: $700 Billion for a Free Lunch
Mendel:
One question: the Reuters article claims that the growth in the cost of Medicare on aper enrolleebasis is lower than the growth in the cost of private health insurance (and is predicted to continue in that manner).
Is this true? And if so, does that not make it harder to argue for converting Medicare into premium support for private insurance plans?
As I understand it, Medicare pays providers at below-market rates. If a doctor typically bills private insurance $1,000 for a given procedure, Medicare will come in and say "we will pay $800, take it or leave it." Your only 2 choices are to refuse all Medicare patients, or to accept whatever prices Medicare sets.
Now, the procedure might actually cost $850 to provide. The doctor will respond the next year by upping their price to $1,100, and Medicare might respond by offering $850. Now the doctor is breaking even on Medicare patients, and making all his profit on privately insured patients.
As a result, the cost to private insurance goes up $100 while the cost of Medicare only goes up $50, allowing Reuters fact-checkers to claim it is more efficient. (cont.)
Jun '10
Re: $700 Billion for a Free Lunch
What's really happening is that health care providers are subsidizing Medicare by passing the real costs onto the rest of us, driving up the cost of private insurance. That is one of the factors behind the health care cost "crisis" of that led to Obamacare.
The further $700 million in "adjustments" will further reduce the payment rates, in the above example $850 might drop to $750. This will either (a) drive up non-Medicare costs even further or (b) reach a tipping point where providers are losing so much on Medicare patients that they are forced to opt out of Medicare altogether.
Apr '12
Re: $700 Billion for a Free Lunch
The claim that lower payments to physicians and hospitals will lead to better outcomes and improved access to care is simply ludicrous. Fighting the bloat, the fat in medicine, ridiculous costs, and the perverse incentives will require some skin in the game for patients in some fashion....otherwise you will have a what we have now - a cheap all you can eat buffet with gourmet food that someone else is paying for.
Re: $700 Billion for a Free Lunch
Thanks everyone for your kind words about my post, and thanks especially for your warm welcome to Ricochet. I have to say that I am very impressed by the high level of discussion about health policy in the comments. I'll answer specific questions in comment boxes below.
Re: $700 Billion for a Free Lunch
Mendel: One question: the Reuters article claims that the growth in the cost of Medicare on a per enrollee basis is lower than the growth in the cost of private health insurance (and is predicted to continue in that manner).
Is this true? And if so, does that not make it harder to argue for converting Medicare into premium support for private insurance plans?
Mendel, your question is excellent. The point to remember here is that the growth rate of federal expenditures under a Ryan-like plan is can be directly controlled since Congress sets the rate of growth of premium subsidies. This is unlike the current version of Medicare, which can grow unbounded.
Under a Ryan-like plan, private insurers will compete with each other to provide the most services they can, given the fact that many people will want to spend only the amount in the premium subsidy and no more. Some will want more comprehensive coverage, but they'll have to throw in some money for premiums to get it. Under such a system, the American people will have a lot more control than they do now over what limits get placed on their health care.
Re: $700 Billion for a Free Lunch
Joseph Stanko: What's really happening is that health care providers are subsidizing Medicare by passing the real costs onto the rest of us, driving up the cost of private insurance. That is one of the factors behind the health care cost "crisis" of that led to Obamacare.
The further $700 million in "adjustments" will further reduce the payment rates, in the above example $850 might drop to $750. This will either (a) drive up non-Medicare costs even further or (b) reach a tipping point where providers are losing so much on Medicare patients that they are forced to opt out of Medicare altogether.
This is exactly right, Joseph. By law, Medicare pays providers a fraction of the private rate, with the extra costs passed on to people with private insurance. If anyone is really curious, there was a nice article in Health Affairs a few years back that empirically demonstrates the problem. The problem is even more acute with Medicaid, which is why so many providers refuse to take Medicaid patients.
Re: $700 Billion for a Free Lunch
That is an excellent video. This double counting of benefits by the Obama administration has been driving me crazy for a while. Ryan, in particular, has been excellent on this point. So have the Medicare actuaries, but no one seems to pay attention to them.
Put simply, every dollar that the ACA saves on Medicare will immediately be spent on paying for insurance for non-elderly people. The ACA redistributes money from the elderly to younger people.
Re: $700 Billion for a Free Lunch
There's no question that there's waste, fraud, and abuse in Medicare. It's a program run by people, after all, and a government program at that. The problem, of course, is that rooting out waste, fraud, and abuse is expensive. It's far from clear that an effort to control them can save very much money.
I'm afraid you're right that for many people, controlling waste, fraud, and abuse is just one more manifestation of free-lunch thinking.
Nov '11
Re: $700 Billion for a Free Lunch
Joseph Stanko: From the article:
Wow. Where to begin. I love the phrase "adjustments to payments." Not cuts, just adjustments. Like your boss calling you in and saying "business has been slow lately, so we've decided toadjustyour salary."
So Obamacare willadjustpayments down by $700 million, but not to worry, this will be meaningless to patients. Pay no attention to the little man behind the curtain.
Just how stupid do they think we are? ยท 14 hours ago
Extremely stupid. I read this supposed fact-check, and was considering posting on it before I saw that Mr. Bhattacharya had already hit the high points.
"Meaningless to patients"? I can't wait to see my Leftist acquaintances Liking this idiocy on Facebook.
Nov '10
Re: $700 Billion for a Free Lunch
I don't think enough is being made of this paragraph. These people really are upset that there are seniors out there who are not dependent on government for their very survival.
Apr '12
Re: $700 Billion for a Free Lunch
The Canadian system began with many insurance agencies but is down to the government single payer. My vet's cat scan is more advanced than the ones available for humans, due to cost controls.
The decision making will becone more centralized and top down too. At least right now it is a small board of experts, this will mushroom into a top heavy, decision making bureacracy. Why would it pay off for a government to pay for new equipment, new technologies when they will get reprimanded for their budget increase? What bureaucrat would not prefer to contain costs by pushing out the purchase of new equipment for years? Government motivation for health care may start out with well meaning intent but government motivation is to save costs and rationing does the job.
Jun '12
Re: $700 Billion for a Free Lunch
I doubt that, in this case.
The Obamacrats are all about power... they want power over people's health decisions.