President Obama's No-Win Medicare Cuts

Joseph Antos, a health policy scholar at The American Enterprise Institute, helpfully explains the dual problems with the Medicare "cuts" proposed in President Obama's new budget blueprint: On the one hand, even ignoring the near certainty that Obama's budget plan won't ever pass, the cuts aren't likely to go into effect. On the other hand, if they did, they could screw up health care access for Medicare beneficiaries:

We have eight years of proof that Congress will never allow those payment reductions to go into effect. Unmentioned in the budget is the little matter of the 27.4% reduction in Medicare payments to physicians, scheduled to take effect on March 1. Whenever physician payments grow more quickly than the economy, Medicare is required to cut their fees using the "sustainable growth rate" formula. However, Congress has overridden those formula-driven payment cuts every year since 2003 and the uncollected bills have mounted up. It is now ludicrous to think that Congress could ever allow such a large payment reduction to take effect. It is equally ludicrous to think that Congress would enforce sizeable reductions in payments to hospitals and other health facilities on top of the hundreds of billions in reductions already levied on them by the Affordable Care Act (ACA).

But suppose the implausible happened and Congress accepted the president's cuts. The cumulative effect of the ACA and the 2013 budget would drive providers out of Medicare, making it increasingly difficult for seniors to get the care they need. Medicare's actuary reported that in 2019 the ACA reductions by themselves would cause 15 percent of hospitals, nursing facilities, and home health agencies to lose money. Piling on with more cuts will only make the problem worse.

So the proposed cuts won't work, because they won't pass. And even if they did, they still wouldn't work, because they'd cause other problems. 

It is imperative that the United States reduce its long-term commitment to spending on Medicare and Medicaid; even the Obama administration admits that in the long run, the country's current commitments are totally unsustainable. But centralized cuts to provider payments are both politically difficult and likely to have significant unintended consequences on health care and access—and yet as I reported in my recent magazine feature on Medicare price setting, policymakers have been trying to control spending by controlling prices for decades without much success. Indeed, Antos, who talked to me for the piece, helped implement one of the major price-setting that he now believes has failed. The problem Antos outlines is the problem with giant-size health entitlements that rely heavily on technocratic price setting, especially as those programs expand coverage and benefits: Policymakers end up having to choose between budget problems and big health system problems.