President Obama’s fiscal reform commission claims to “end redundant, antiquated, ineffective spending” and reduce the deficit by almost $4 trillion over the next eight years. What better place to start than Medicare?
Yet, while encouraging seniors to shop around by proposing to expand the amount they pay for Medicare services, the commission wants to preserve the basic structure of cost controls that haven’t worked before and are unlikely to work in future.
The commission’s report is especially relevant because on Dec. 1 all Medicare physicians will face a 23 percent cut in rates, postponed from June. Reimbursements will decline an additional 2 percent in January.
The commission wants to fund the cuts by “asking doctors and other health care providers, lawyers, and individuals to take responsibility for slowing health care costs,” in other words, by paying doctors less.
It would expand the scope of the Independent Payment Advisory Board, created by the new health care law to cap Medicare spending and authorize drugs and procedures. In the long run, it would cap federal health spending at 1 percent above GDP growth.
The problem is that if Medicare pays doctors less, they are likely to perform extra tests, or to withdraw from Medicare, as more physicians have done in recent years.
This is not just a drama for 2010. It will play again well into the future as Congress tries to conquer the rising cost of Medicare (being driven up by those new beneficiaries, the Boomers) without saddling seniors with much bigger out-of-pocket bills.
To create the appearance, if not the reality, of fiscal discipline in the new health care law, Congress assumed $455 billion of Medicare and Medicaid cuts — 73 percent of them in Medicare — over 10 years, and thereafter 10 percent to 15 percent of annual cuts.
So, physicians’ reimbursements affect not only doctors and seniors and Medicare’s price tag, but also the cost of the new, national health care plan.
Freeing Medicare physicians from future cuts could cost $250 billion to $400 billion over 10 years, depending on how much the government allows doctors’ payments to rise.
If Congress regularly overrides an existing law requiring Medicare payments to doctors to be cut when the program is in deficit, as it is today, why should the commission’s recommendations be taken more seriously?
What is needed is a radically new model for Medicare, one that lowers costs through competition and market forces, just as prices for cosmetic surgery and Lasik have declined over the past decade.
Rep. Paul Ryan, R-Wis., the future chairman of the House Budget Committee, has proposed that Americans currently over the age of 55 keep the current Medicare plan when they reach retirement.
But those now 55 and under, when they retire, would receive refundable tax credits to choose any health care plan, not just Medicare. People with lower incomes would receive larger credits.
According to Galen Institute President Grace-Marie Turner, “Medicare Part D gives seniors a choice of private competing prescription drug plans. By employing consumer choice and private competition, the program is costing 40 percent less than projected. This is the structure that Mr. Ryan’s Roadmap would use to put Medicare on a path to solvency.”
Ryan’s plan is part of his overall effort to transform health care into a more consumer-driven system by giving all Americans refundable tax credits to purchase insurance. Just as Americans choose their auto and home insurance, they would also choose their health insurance, negotiating discounts for healthy behavior.
America needs to confront the problems of Medicare and find a solution, and the commission should look at the Ryan plan as a place to start.
Examiner Columnist Diana Furchtgott-Roth, former chief economist at the U.S. Department of Labor, is a senior fellow at the Hudson Institute.
