"If you look at the numbers," President Obama said in July, "then Medicare in particular will run out of money and we will not be able to sustain that program no matter how much taxes go up. I mean, it's not an option for us to just sit by and do nothing." In a White House speech today, however, the president proposed $3 trillion in deficit reduction, roughly half of which would come from tax hikes. Along with the tax increases, he also proposed $248 billion in cuts to Medicare and $72 billion in cuts to Medicaid, the largest portion of which come in the form of reductions to reimbursements for health providers. Even if the cuts pass and Congress actually allows them to happen—always a dubious proposition when provider reimbursements are involved—those cuts would barely make a dent in the next decade's worth of Medicare spending. The program cost a little more than $500 billion to run in 2010 alone. By 2020, its annual cost is projected to rise to about $920 billion.
But it's actually worse than that. In all likelihood, the Medicare cuts Obama proposed wouldn't even make up for the Medicare spending that's not currently on the books, but virtually guaranteed to occur: the so-called "doc fix." Thanks to a payment formula passed in 1997, physician payment rates have been set to drop every year since 2003, and budgets, which are based on current law, always assume that those rate cuts occur. But Congress has only ever let one of those rate cuts go through. Every year since, and sometimes more than once a year, legislators have passed a temporary payment "fix" to override the scheduled cuts.
The most recent temporary patch takes us through the end of this year. But physician reimbursement rates are set to fall by 29.5 percent at the beginning of 2012. Except, of course, that they won't. Congress has been overriding those scheduled rate cuts for years, and will surely do the same again this time around. Over the next decade, the cost of a ten-year fix is now projected to run about $370 billion. The main reason Congress hasn't passed a permanent fix? There's little agreement about how to pay for it. So even if Obama's $248 billion in Medicare cuts go through, that still leaves Medicare $120 billion in the hole for an expense that legislators have known about for years—not to mention headed down the path toward insolvency under even the rosiest of projections.
This isn't the first time Obama has avoided the problem: ObamaCare ignored the "doc fix" too.