Did you hear the great news? According to the latest Medicare Trustees report, “Medicare isn't going bankrupt,” and Vox has a chart to prove it! Not only that, “slow health cost growth has improved Medicare's financial outlook, extending the program's trust fund to last until 2030.” That’s four years longer than last year’s forecast!
It all sounds great until you hear what Vox unaccountably elected not to tell its readers. All those rosy Medicare predictions are based on a scenario that no one with any common sense should believe. All those rosy Medicare predictions are based on a scenario that no one with any common sense should believe." As PolitiFact.com pithily puts it: “There are good reasons to question whether things will pan out that way.” Indeed, you don’t exactly have to be a mind-reader to see that the Medicare actuaries also don’t believe this scenario which is precisely why they again (as they have done routinely in 2011, 2012, and 2013) released an alternative fiscal scenario that is far more likely to transpire.
Medicare Part A Actually Will Grow 2-1/2 Times As Fast As Vox Says
When Vox says the trust fund will last another four years, that’s a reference to the Part A Hospital Trust Fund. Under the so-called “projected baseline” used in the Trustees’ report, the trust fund will indeed last until 2030. But that baseline portends cuts in hospital payment rates so drastic that Obamacare-mandated reductions in payments to hospitals so drastic that:
- Hospital payments for both Medicare and Medicaid will be 38% lower than the amounts paid by private health insurers by the year 2030 (Figure 1).
- Eventually, payment reductions to hospitals will mean they are paid 59 percent less by Medicare and Medicaid than by private health insurers!
Indeed, the cuts in Medicare payments that were included in Obamacare are so draconian, the Medicare actuaries have estimated that
by 2019 up to 5 percent more hospitals would experience negative total facility margins relative to 2012.18 Additionally, 5-10 percent of hospitals would experience negative Medicare margins by 2019. By 2040, approximately half of hospitals, two-thirds of skilled nursing facilities, and 90 percent of home health agencies would have negative total facility margins.
In short, the rosy picture for Medicare will come true if and only if we’re willing to tolerate devastating reductions in access to care for seniors and others who rely on facilities dependent on Medicare revenues (read: virtually all U.S. hospitals).[1] As the Medicare actuaries have pointed out, Congress has succeeded in bypassing statutorily required cuts in Medicare payments to doctors for 15 straight years (the latest “doc fix” keeping this charade going through March 31, 2015). It would be completely out-of-character behavior for Congress not to similarly respond to the pleas (likely shrieks) from hospitals and other Part A providers to find some way to delay or avoid the mandatory Obamacare cuts. The alternative fiscal scenario simply assumes they succeed.
What difference does it make? Quite a bit, as it turns out. Under the alternative fiscal scenario Medicare Part A will grow 2-1/2 times as fast as the baseline scenario that undergirds all of Vox’s conclusions about Medicare’s fiscal health.
That is, instead of growing 52% faster than the economy over the next 75 years, Medicare Part A’s share of GDP actually will increase by 130%. Instead of Medicare’s leveling out as a percentage of GDP by the end of the projection period, the program actually will continue to rise unabated, absorbing an ever-increasing share of the economic pie. Moreover, even under the unrealistic baseline scenario, Medicare’s unfunded liability remains staggering — a full $47.5 trillion over the infinite horizon. That’s $11.2 trillion more than the 2010 report [corrected from original: see Update #1]. Does any of this sound as if we’ve succeeded in bending the cost curve?
Medicare Savings Are Intended to Fund Obamacare, Not Save Medicare
But leave aside Vox’s wholly misleading impression of the shape of Medicare's current trajectory Medicare. The more pernicious untruth being peddled to unwary readers is that every penny in Medicare savings can be used to shore up Medicare finances when in fact it was intended to bankroll that new entitlement called Obamacare. Perhaps only policy wonks will remember the fierce battle in 2009 and 2010 to keep Obamacare’s price tag below $1 trillion and to finance it in a way so that purportedly the law would not increase the deficit “by one dime.” Admittedly, the latter claim probably merited a PolitiFact Lie of the Year Award, but leave that aside as well.
As shaky as they are, the claims that Obamacare would cost less than $1 trillion and not add a dime to the deficit both relied on the fiction that hundreds of billions in Medicare savings (if Congress is brave enough to see that these stick) will be available to fund Obamacare. But if we use those resources to pay for expanded coverage, we quite obviously don’t have the same resources available to also “save Medicare” or extend the life of its trust funds. This point has been made repeatedly by Medicare public trustee Charles Blahous (someone who presumably knows way more about this issue than I or any other Forbes reader does). My AEI colleague Jim Capretta (a former OMB official who likewise knows the ins and outs of this issue way better than the average bear) also has just recently offered a succinct take-down of the absurdities underlying this double-counting.
Bottom Line
In short, there’s ample reasons to believe that the dramatic slow-down in Medicare spending implicit in the rosy scenario trotted out by Vox is unlikely to occur. Moreover, the rosy scenario actually isn’t all that rosy given that Medicare’s unfunded liabilities will continue to grow even if the rosy scenario actually comes to pass. But even if this happened, this would do nothing to “save Medicare” or extend its life since these resources also have been promised to bankroll Obamacare.
Admittedly, we could use the savings (if they transpire) to help reduce the extent to which Medicare’s unfunded liabilities will grow. But if we did that, we essentially would blow a hole in Obamacare’s finances, i.e., creating a fiscal hole of equivalent magnitude. Shifting trillions of dollars in unfunded liabilities from one pocket to another pocket does absolutely nothing to improve Uncle Sam’s ability to bankroll the ever-growing list of misguided entitlements that President Obama and his progressive enablers in Congress have handed to future generations.
We need to replace Obamacare with a more sensible patient-centered reform plan. Vox's shading the truth about Obamacare's pernicious consequences on Medicare does not contribute to an informed debate about how to rid ourselves of this misguided law.
Update #1: July 29, 2014
HT to Charles Hughes @charleshhughes for Tweeting that my statement “Medicare’s unfunded liability remains staggering — a full $43 trillion over the infinite horizon. That’s nearly $7 trillion more than the 2010 report” actually referenced the 2013 report, not this year's. I also probably should explain that the $43 trillion ($42.8T to be precise) actually represents the sum of Medicare Part A unfunded liabilities and the net present value of general fund revenues that will have to be used to pay for Medicare Part B and Part D benefits. This is a conservative figure since it ignores the added amounts that states will have to transfer into Medicare as well as the high premium payments paid by beneficiaries. The combined total for all of these components amounted to $56.9T, not $42.8T. But using the more conservative figures, Medicare's unfunded liabilities grew from $36.3T in 2010 to $42.8T in 2013 to $47.5T in 2014--an $11.2T increase since 2010. This merely amplifies my point about Obamacare not exactly having gotten Medicare spending under control.
Update #2: July 31, 2014
A few items have come to my attention that are worth consideration for readers interested in learning more about this issue:
- Over at The Weekly Standard, Mark Hemingway offers his own trenchant skewering of the Vox piece.
- And while he doesn't mention the misleading Vox account, John Goodman's write-up of the Bernie Madoff scheme known as Medicare should quickly put to rest any notion that the plethora of Medicare demonstration projects unleashed by Obamacare will somehow put the program on a sustainable fiscal path.
- Ben Domenech points out at The Federalist that CBO's skepticism about Medicare's baseline budget has recently become far less transparent as analysts engage in "Enron-style accounting on Obamacare."
- Medicare actuaries actually have come up with a side-by-side comparison of the impact of the baseline scenario vs. the alternative fiscal scenario on Medicare's unfunded liabilities over the next 75 years. Unfunded liabilities are about 25% larger under the alternative fiscal scenario (a dollar amount equivalent to nearly half the current U.S. federal government's debt).
- And though it has nothing to do with Medicare, an earlier critique I did of Vox's misleading use of gun violence statistics simply amplifies my concern that too often Vox's take on health policy matters is driven by the progressive views of its writers rather than the honest pursuit of truth.
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Footnotes
[1] Readers need not take my word for it. Dr. Joseph Newhouse, a chaired Professor of Health Policy and Management at Harvard (and the man who taught me health economics at RAND while he was there directing the RAND Health Insurance Experiment), wrote in an article for Health Affairs: “…it is equally hard to imagine cutting only Medicare spending while spending by the commercially insured under age sixty-five continues to grow at historic rates, which would lead to a marked divergence between what providers are paid for treating the ommercially insured relative to what they are paid for Medicare beneficiaries. This gap could jeopardize Medicare beneficiaries’ access to mainstream medical care.” These and other similar comments by leading health policy experts such as Harvard’s David Cutler, Washington and Lee University law professor Timothy Jost, The Incidental Health Economist’s Austin Frakt, and even former CBO and OMB director Peter Orzsag raise serious questions about what is likely to happen to access in the face of such unrelenting payment cuts and are codified in the Medicare actuaries’ report (p. 8).
