Monday, August 9, 2010

"A gap in trust" on Medicare. And the return of the "R" Word--Rationing

Two new perspectives are out today, taking a close look at the Obama administration’s claims about future Medicare financing.  Who's telling the truth about Medicare?   What’s the future of the program?    Some say that we are seeing a return of the “r” word--rationing.    

But first, some background.  On Thursday, the Treasury issued a new report hailing the deficit-reduction powers of Obamacare.  As Treasury Secretary Geithner put it: 

The Affordable Care Act has dramatically improved projected Medicare finances.  Medicare's Hospital Insurance (HI) Trust Fund is now expected to remain solvent until 2029, 12 years longer than was projected last year, which is a record increase from one report to the next.  In addition, the 75-year financial shortfall for HI has been reduced to 0.66 percent of taxable payroll from 3.88 percent of taxable payroll in last year's report, and the projected costs for the Medicare Supplementary Medical Insurance (SMI) program over the next 75 years, expressed as a share of GDP, are down 23 percent relative to the projections in the 2009 report  Nearly all of these improvements in projected Medicare finances are due to the Affordable Care Act President Obama signed into law in March. 

That all sounds pretty good, but Chicago Sun-Times columnist Terry Savage noticed that Geithner’s claims were at odds with the assertions of Medicare Chief Actuary, Richard Foster.     Here's how Savage explained it: 

There's a huge gap in Medicare, and it can't be covered by a supplement. It's not just a gap in coverage, it's a huge gap in the solvency of the Medicare program itself. And now, it's a gap in trust.

On the one hand, the government is promising senior citizens that Medicare recipients won't feel any cuts. And on the other hand, they're promising the program will be more solvent, essentially because of huge cuts that are planned for the program. It's the worst, most dangerous kind of double-talk. And it will impact all of us.

The trustees' report, usually out early in the year, was delayed for six months to "factor in the impact of the new healthcare reform law." When it was made public last week, the man in charge of crunching the real numbers, the chief actuary for Medicare, called the rosy predictions "unreasonable" and "implausible." Instead he wrote his own report, contradicting those projections -- and urged everyone to read it. So let's see who's right.

The preface to that much-delayed trustees' report released Thursday starts with a cheery greeting from Treasury Secretary Tim Geithner.

Geithner proclaims: "The outlook for Medicare has improved substantially because of program changes made in the Patient Protection and Affordable Care Act as amended by the Health Care and Education Reconciliation Act of 2010." He goes on to predict that "the Medicare Fund will now remain solvent for an additional 12 years, until 2029."

But the Alternative Report posted by the Medicare chief actuary, Richard Foster, on the same day included this statement in the opening paragraph:

"The trustees report is necessarily based on current law; as a result of questions regarding the operations of certain Medicare provisions, however, the projections shown in the report do not represent the 'best estimate' of actual future Medicare expenditures." Foster says his report is designed to "help illustrate and quantify the potential magnitude of the cost understatement under current law."

So whom do you believe -- the guy with the numbers or the guy with the politics?

As Savage explains, the result could be mandated shortfalls, as costs are crimped and doctors and hospitals exit the field: 

So what will happen when all those facilities close because of low reimbursements? You'll find yourself standing in a long line for medical services. That's known as "rationing health care."

So there it is--the “r” word--rationing.   Rationing, of course, is fine with the current cadre of Washington bean counters.  Indeed, it’s the desired policy outcome.   

Another look at the same split, between Geithner and Foster, appears in a Wall Street Journal editorial this morning; the headline reads, “Richard Foster for President.” As the Journal notes, Geithner’s optimism is put first in the report--and then, at the end of the report, Foster, the actuary, repudiates it:  

But then comes the report's final appendix, where Mr. Foster disowns the previous 280-odd pages. Mr. Foster has been Medicare's chief actuary for 15 years, and as such he is required to evaluate the law as written. But as he notes in his appendix, the law as written bears little if any relation to the real world—and thus, he says, the trustee estimates "do not represent a reasonable expectation for actual program operations in either the short range . . . or the long range." In an unprecedented move, he directs readers to a separate "alternative scenario" that his office drew up using more realistic assumptions.

Mr. Foster shows that the Medicare "cuts" that Democrats wrote into ObamaCare exist only on paper and were written so they could pretend to reduce the deficit and perform the miracles the trustees dutifully outlined. With the exception of cuts in Medicare Advantage, those reductions will never happen in practice. 

One of the fictions Mr. Foster highlights is the 30% cut in physician payments over the next three years that Democrats have already promised to disallow. Republicans would do the same, we hasten to add.

Another chunk of ObamaCare "savings" are due to cranking down Medicare's price controls for hospitals and other providers that Mr. Foster says are also "extremely unlikely to occur." In the absence of "substantial and transformational changes in health-care practices"—in other words, a productivity revolution in medicine that has never happened—costs will simply rise for private patients, or hospitals will refuse to treat seniors insured by Medicare. Congress will never allow that to happen either.

In other words, under ObamaCare the "cost curve" will not be bent as the White House has advertised.

It seems apparent that one of two things will happen over the years and decades to come:   

The first possibility is that the Obama administration, and future presidential administrations, will find a way to tamp down Medicare spending, through rationing and whatever other scheme the feds can cobble together.   In which case, we will see a two-tier system of healthcare emerge.   

The second possibility is that these cost-controlling efforts will fail, as politicians yield to popular pressure.  In which case, Medicare spending will continue to climb faster than GDP.    

Based on past history, one would have to bet on possibility #2.  But it could be, of course, that we are living in new times, as fear of “Greece-ization” takes hold--in which case, possibility #1 becomes more likely.   And so we could see a two-tierization of US healthcare--a chintzy system of rationing and planned scarcity for ordinary seniors, and a limousine system for the rich.   That two-tiering might sound fine from the perspective of Greenwich or Beverly Hills, but it’s unlikely to prove political sustainable, without major changes in our political system.    

Curbing costs is obviously desirable, but as noted here at SMS many times, there’s a right way to do it and a right wrong way to do it.   The right way is cures, the wrong way is cuts.    And of course, everybody knows that Washington officialdom is firmly committed to cuts.  


  1. I do not have to be a medical journalist or an economist to summarize the article above in much the same way I speculated about the health care bill before it was passed. There is a possibility that the doctors will move on to other positions which they easily can acquire and the providers will go on to life and auto as they are pressured to leave by taxes fees and cuts. That has been expressed many times in the past as the way to be painted into the corner of universal health care. If you live on Fifth Avenue you are still going to get top notch health care one way or the other. The millions of the indigent who were the focal point of this bill may still end up on a stretcher in the hallway.

  2. You are right-on Jim. And in addition, BTW "rationing health care" will also occur due to Doctors leaving - not accepting Medicare patients.
    That’s right! Doctors, especially those with kids out of school, will be pulling out. A 30% cut in reimbursements will be a $$ loser for them. They’ll want cash up front and or will try Concierge Medicine. My son the doctor says there will be a lot of guys in private practice leaving his profession. He noted that two of the things necessary for them to reconsider Obamacare would be if The Hill People addressed Tort Reform and Interstate Medical Insurance coverage aka, allowing insurance companies to compete over state lines.
    Thanks for this column.
    Keep it up, because the corrupt “DC Dummies” are hell bent on wrecking Medicine.
    November 2nd is coming and I hope we gut them in the Election Booth like a deck hand does on a fishing boat.

    BTW, per Obama $35B was stolen from Medicare in 2009. Can you imagine the number of uninsured we could pay for with that money?