Medicare's Chief Actuary: Sorry, ObamaCare's Medicare Reforms Probably Aren't Viable in the Long Term


White House allies are already touting today's report on Medicare's fiscal outlook from the program's Trustees as proof that ObamaCare will be good for Medicare.

Here, for example, is a news flash at ThinkProgress, a blog published by the liberal Center for American Progress, with the headline: "Obama's Affordable Care Act Will Save Medicare $200 Billion." But according to Medicare's actuary, the long range savings associated with the law probably aren't viable. 

Now, it is true that the report projects that under current law, payment reductions and other changes called for in the 2010 health care overhaul would, if successfully enacted in their entirety, put the program on somewhat better fiscal footing. But it should be noted that the $200 billion touted by CAP isn't much in the context of the program's fiscal deficiencies. The long-term shortfall associated with only the Medicare prescription drug benefit passed under the Bush administration is more than $14 trillion

Even more important, however, is that Medicare's own fiscal overseer doesn't think that the projections are likely to prove accurate. In the actuary's note at the end of the report, Richard Foster, the program's chief actuary, warns that "the financial projections shown in this report for Medicare do not represent a reasonable expectation for actual program operations in either the short range (as a result of the unsustainable reductions in physician payment rates) or the long range (because of the strong likelihood that the statutory reductions in price updates for most categories of Medicare provider services will not be viable)." [bold added]

Why is Foster so skeptical? One reason is that current law calls for Medicare's physician payments to drop by roughly 30 percent at the end of this year. And thus the Trustees report factors that payment reduction into its estimates despite widespread understanding that the scheduled drop won't occur. Another reason is that ObamaCare calls for continued health sector productivity improvements that aren't likely to be sustainable. But because ObamaCare counts on these improvements, the Trustees report builds them into its projections. 

But that doesn't reflect the reality of the program's likely fiscal future. Here's Foster with a more detailed explanation:

In past reports, and again this year, the Board of Trustees has emphasized the strong likelihood that actual Part B expenditures will exceed the projections under current law due to further legislative action to avoid substantial reductions in the Medicare physician fee schedule. While the Part B projections in this report are reasonable in their portrayal of future costs under current law, they are not reasonable as an indication of actual future costs. Current law would require a physician fee reduction of an estimated 30.9 percent on January 1, 2013—an implausible expectation.

Further, while the Affordable Care Act makes important changes to the Medicare program and substantially improves its financial outlook, there is a strong likelihood that certain of these changes will not be viable in the long range. Specifically, the annual price updates for most categories of non-physician health services will be adjusted downward each year by the growth in economy-wide productivity. The best available evidence indicates that most health care providers cannot improve their productivity to this degree—or even approach such a level—as a result of the labor-intensive nature of these services.

Without unprecedented changes in health care delivery systems and payment mechanisms, the prices paid by Medicare for health services are very likely to fall increasingly short of the costs of providing these services. By the end of the long-range projection period, Medicare prices for hospital, skilled nursing facility, home health, hospice, ambulatory surgical center, diagnostic laboratory, and many other services would be less than half of their level under the prior law. Medicare prices would be considerably below the current relative level of Medicaid prices, which have already led to access problems for Medicaid enrollees, and far below the levels paid by private health insurance. Well before that point, Congress would have to intervene to prevent the withdrawal of providers from the Medicare market and the severe problems with beneficiary access to care that would result. Overriding the productivity adjustments, as Congress has done repeatedly in the case of physician payment rates, would lead to substantially higher costs for Medicare in the long range than those projected under current law.

The administration will no doubt tout this report as proof that the health care overhaul improves Medicare's fiscal position. Perhaps you could excuse them for their naive optimism at one point, but by now, they should know better: Foster offered a strikingly similar warning last year.