CBO Report Shows, Without Reform, the Future of Medicare Ain’t Pretty
June 30, 2011 at 12:28 pm
The Congressional Budget Office (CBO) recently released its annual Long-Term Budget Outlook, which highlights the effects of existing policy on the federal budget. The verdict: The current trajectory is “unsustainable.”
Growing federal health care spending is a major driver of future deficits. As CBO explains, “Spending for health care in the United States has been growing faster than the economy for many years, posing a challenge not only for the federal government’s two major health insurance programs, Medicare and Medicaid, but also for state and local governments and the private sector.” The report shows that the outlook is grimmer than ever, despite the vaunted “deficit reduction” claims of those in Congress who voted for Obamacare.
Obamacare means massive provider cuts and massive new spending. The new law relies on top-down cuts and an unelected board to make further cuts to the program to reduce its cost. Cutting health care providers’ reimbursements is the wrong way to reduce Medicare spending, since, as the Medicare Actuary has warned, it would threaten seniors’ access to care.
In addition to enacting these failed policies, after passing Obamacare, Congress once again temporarily extended a “doc fix” to avoid a permanent solution to the existing Medicare physician payment mess. Lawmakers will likely continue to delay the cuts mandated by the formula governing Medicare physician payment (misleadingly dubbed the sustainable growth rate, or SGR), guaranteeing huge increases in federal spending above what is assumed under current law.
CBO assumes many of the attempts to reduce Medicare spending, in addition to a continued “doc fix,” will lead spending in the program to exceed what is predicted under current law. It reports:
Beyond the initial 10-year span, CBO assumed that three Medicare policies that might be difficult to sustain over a long period—further reductions in payment updates for most providers in the fee-for-service program, the sustainable growth rate mechanism for payment rates for physicians, and the IPAB—would not continue past 2021. Without those policies in place, CBO expects that excess cost growth will follow the path of underlying excess cost growth described above.
Even if the cuts do occur, savings won’t be used to strengthen the program. Instead, as CBO explained in last year’s outlook, “…the majority of the HI [Hospital Insurance] trust fund savings achieved under the legislation through 2019 will be used to pay for other spending and therefore will not enhance the government’s underlying ability to pay for future Medicare benefits.”
Medicare “as we know it” has an expiration date under current law. Liberals in Congress and their allies routinely accuse Representative Paul Ryan (R–WI) and congressional conservatives of trying to “end Medicare as we know it.” But as CBO confirms, the program is already on life support if left unreformed:
According to CBO’s March 2011 baseline projections, the HI trust fund will be exhausted in 2020. Once the HI trust fund is exhausted, the Centers for Medicare and Medicaid Services will no longer have legal authority to pay health plans and providers. Annual outlays would therefore be limited to annual revenues. If payments to health plans and providers could be made only from annual revenues, which are inadequate to cover total costs, beneficiaries’ access to health care services could be reduced. Projections in this report incorporate an assumption that Medicare benefits would continue to be paid regardless of the financial status of the HI trust fund.
We need real reform…now. Heritage budget expert Alison Fraser writes, “When someone has a serous illness and holds off on seeing a doctor, he or she only grows more ill and requires a more drastic and potentially painful cure. In the same way, so does delaying action on getting spending and the debt under control further weaken the economy, stifle job growth, and injure investor confidence.” To strengthen and preserve Medicare and to fix the health care system at large, real change is needed now.
Heritage’s plan, Saving the American Dream, fixes Medicare by introducing “the powerful forces of consumer choice and competition.” Unlike Obamacare, these proposed reforms wouldn’t rely on a board of bureaucrats to lower costs. Instead, the free market would be employed to allow enrollees to receive better-value health benefits. Making Medicare sustainable is essential to reducing federal deficit spending. Unless policymakers enact real reform that lowers costs now, future generations will face fewer benefits and crushing taxes.
Kyle Rusciano contributed to this post. He is currently a member of the Young Leaders Program at The Heritage Foundation. For more information on interning at Heritage, please visit: http://www.heritage.org/about/departments/ylp.cfm