The Coming Healthcare Cuts for Seniors and the Disabled

Senior citizens are major losers in health reform. More than half the cost of the reform will be paid for by $523 billion of cuts in Medicare spending over the next ten years.[1] Although there are some new benefits for seniors (mainly new drug coverage), the costs exceed the benefits by a factor of more than ten to one.

Cuts in Medicare Fees to Providers and in Advantage Plans

Medicare actuaries have made several ominous predictions.[2]

• By 2020, Medicare nationwide will pay doctors and hospitals less than what Medicaid pays.[3]

• By 2019, one in seven facilities will become unprofitable and will probably be forced to leave the Medicare program.

• That number will grow to 25 percent of all facilities by 2030 and to 40 percent by 2050.

Moreover, in the not-too-distant future, Medicare patients could find themselves in the same position as Medicaid enrollees—who often are forced to get all their care at community health centers and safety net hospitals.[4] Ultimately, if Medicare spending grows at a lower rate than the healthcare system as a whole, the elderly and the disabled will end up in a completely different healthcare system. They will not be able to see the same doctors, enter the same hospitals, or get the same quality of care other Americans have access to.

In defense of its plan, the Obama administration claims that it will target Medicare cuts to eliminate waste—to encourage low-cost, high-quality care and discourage high-cost, low-quality practices. Yet, the cuts in Medicare Advantage subsidies, for example, appear to be based on special interest politics alone, not on any lofty goals.[5] Moreover, the plans that are being defunded are ostensibly doing everything President Obama says he wants to accomplish with health reform.[6]

• They provide subsidized coverage to low- and moderate-income people who could otherwise not afford it.

• They control costs better than conventional insurance by eliminating unnecessary care.

• They provide higher quality care.

• They have no pre-existing condition limitations, and some plans actually specialize in attracting and caring for patients with multiple illnesses.

• They provide an annual choice of plans.

• They even compete against a public plan (traditional Medicare).

A Better Solution: Reform Medicare the Right Way

Many of the cuts to Medicare will have to be restored. However, Medicare cost increases can be slowed by empowering patients and doctors to find efficiencies and eliminate waste.

On the demand side, seniors should be able to have Health Savings Accounts. In this way, those who avoid unnecessary or wasteful spending would be able to use those same dollars for other consumption spending. Patients, in other words, would have a financial self-interest in keeping costs down.

On the supply side, doctors, hospital administrators, and other providers should be able to approach Medicare and request to be paid in more efficient ways. The ground rules are: the change cannot increase Medicare’s costs, and the quality of care for the patients cannot go down. With this opportunity in place, providers would find it in their self-interest to find ways to eliminate inefficiencies and waste.

For more ideas on what most needs repealing and replacing in the new healthcare law, please consult my Independent Institute book, Priceless: Curing the Healthcare Crisis.

Notes:

1. Douglas W. Elmendorf, “Letter to Speaker Nancy Pelosi,” Congressional Budget Office, March 20, 2010, http://www.ncpa.org/pdfs/Managers-Amendment-to-Reconciliation-Proposal.pdf.

2. John D. Shatto and M. Kent Clements, “Projected Medicare Expenditures under an Illustrative Scenario with Alternative Payment Updates to Medicare Providers,” Center for Medicaid & Medicare Services, August 5, 2010, https://www.cms.gov/ReportsTrustFunds/downloads/2010TRAlternativeScenario.pdf.

3. Joseph P. Newhouse, “Assessing Health Reform’s Impact on Four Key Groups of Americans,” Health Affairs 29 (2010): 1714–1724, doi: 10.1377/hlthaff.2010.0595.

4. For example see: Robert A. Berenson, “From Politics To Policy: A New Payment Approach In Medicare Advantage,” Health Affairs 27, No. 2 (2008): w156–w164. doi: 10.1377/hlthaff.27.2.w156.

5. Robert A. Berenson, “From Politics To Policy: A New Payment Approach In Medicare Advantage,” Health Affairs 27, No. 2 (2008): w156–w164 (Published online ) doi:10.1377/hlthaff.27.2.w156. Also see Lisa Wangsness, “Democrats Seek Cuts in Medicare Advantage: Citing Perks, GOP says Obama Misled,” Boston Globe, September 24, 2009.

6. John C. Goodman, “The Puzzling War on the Elderly,” John ­Goodman’s Health­ Policy­ Blog, August 24, 2009, http://healthblog.ncpa.org/the-puzzling-war-on-the-elderly/.

[Cross-posted at Psychology Today]