Will ObamaCare's Medicare Cuts Work?


When the Congressional Budget Office released its early scores of what eventually became the new health care bill last year, it frequently included a caveat cautioning that, yes, the law could reduce the deficit if executed exactly as written. But based on historical evidence, the CBO said, that's not very likely to happen.

In today's Washington Post, former Bush HHS Secretary explains why the bill's arbitrary Medicare cuts, and the independent commission that's supposed to ensure they happen, are historically unlikely to produce the intended results:

This kind of arbitrary cost-cutting in Medicare doesn't work. Since 1989, Congress has tried to put a lid on total fees paid to physicians. The use of physician services has soared under Medicare's fee-for-service arrangements. The automatic formula has tried to offset the higher costs with lower fees, across the board. But the cuts are so draconian that they drive physicians out of the program and reduce beneficiaries' access to care. The result is a bipartisan rush to undo the cuts every year. Why would we expect a different result from arbitrary cost-cutting in the new health law?

The administration has also pointed to the Independent Payment Advisory Board as a "game changer" for Medicare and the broader health system. The 15-member board is charged with finding savings in Medicare to keep spending growth below fixed targets, starting in 2015. Its recommendations will take effect automatically unless overruled in a new law.

Although Congress handed off substantial power to the board, lawmakers did so by removing its potency. The board can change only Medicare's payment rates for services and products (and it can't touch hospitals until 2020). The board can't change the nature of the Medicare entitlement or try to impose more market-based discipline on the program. That means the only way it can hit the budget targets is with reductions in reimbursement rates for those taking care of patients. That approach never works to control costs because the volume of services used is left unchecked. This undermines quality by penalizing high and low performers alike.

Supporters of the health care overhaul have criticized Republicans for pushing to repeal the commission. There's definitely an element of pandering in some of those calls, and in general, Republicans, with a few exceptions, have been far too willing to defend Medicare as untouchable. But at the same time, the PPACA's supporters have largely failed to make a convincing case that the Medicare payment commission will actually achieve its goals.