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Obama’s Medicare Half-Truth

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Obama was called a liar during his recent address to a joint session of Congress. Actually, he was not fully truthful
about the implications of cuts to Medicare. Obama repeated that his
health reform plan includes payment cuts for private Medicare Advantage
(MA) health plans:

The only thing this plan would eliminate is the
hundreds of billions of dollars in waste and fraud, as well as
unwarranted subsidies in Medicare that go to insurance companies —
subsidies that do everything to pad their profits and nothing to
improve your care. … So don’t pay attention to those scary stories
about how your benefits will be cut… That will never happen on my
watch. I will protect Medicare.

Obama’s claim that the cuts will trim insurer profits but not Medicare benefits was meant to calm nervous seniors. As I and others
have pointed out the proposed cuts will in fact reduce benefits to some
degree, contrary to the President’s assertion. But seniors, in
general, should not be concerned. First, only about 23% of Medicare beneficiaries are enrolled in an MA plan.

Second, there will be very little loss in consumer surplus due to MA payment cuts. Estimates from my 2008 International Journal of Healthcare Finance and Economics paper (co-authored by Steve Pizer and Roger Feldman)
suggest that the consumer surplus loss associated with cuts in payments
to MA plans will be only 14 cents per dollar saved. The study on which our paper
was based was funded by the Changes in Health Care Financing and
Organization (HCFO) Initiative of the Robert Wood Johnson Foundation
and is summarized in a HCFO Findings Brief.

In this case, consumer surplus is the dollar value that Medicare
beneficiaries receive from the benefits provided by their chosen health
plan. This is estimated by examining the detailed choices seniors
actually make and then calculating what they would be willing to pay,
on average, for particular bundles of benefits. It turns out that the
additional benefits and flexibility created by recent increases in MA
payment rates simply weren’t worth very much to seniors. By comparison,
the consumer surplus loss per dollar saved associated with eliminating
prescription drug plans, something no one has proposed, would be nine
times larger.

Despite Obama’s rhetoric, the truth is that under his plan a small fraction of Medicare beneficiaries will
lose their MA benefits and/or face higher costs. However, the potential
savings are enormous and research shows that the benefit cuts needed to
achieve them will not be terribly missed. While Obama’s statements
about Medicare cuts are not strictly true, in practice they will turn
out to be mostly true.

Austin Frakt is a health economist and principal investigator
with the Department of Veterans Affairs’ Health Services Research and
Development Service and assistant professor with the Boston University
School of Public Health, Department of Health Policy and Management.
The views expressed in this post are his alone and do not necessarily
reflect the positions of Boston University or the Department of Veterans
Affairs.  Frakt
blogs at The Incidental Economist where this post first appeared.

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MD as HELLMargalit Gur-ArieTimAusitn FraktThe Incidental Economist Recent comment authors
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Greg Pawelski
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Greg Pawelski

Nate, the Personal Responsibility and Work Opportunity Reconciliation Act of 1996, prohibits undocumented immigrants from being eligible for most public benefits and codified procedures for verifying eligibility.
In the case of Medicaid, according to the GAO, six states spent $16.6 million of federal and state taxpayer dollars to implement extra verification procedures but only caught eight undocumented immigrants, while at the same time blocked thousands of U.S. citizens.
This doesn’t make any moral, economic or practical sense.

Nate
Guest
Nate

Margalit have you not read the White House website on this? If Obama’s changes pass an illegal alien can come into the country and purchase a non exchange policy with no pre-ex and no limits. Nothing in his proposal stops them from doing exactly what I said. You don’t need a drivers license, bank account, or IRS number to apply for insurance. As long as you don’t try to get an exchange plan. This is a blatant attempt to kill off private insurance. Greg you might want to look up the initials GAO, CMS, and CBO all have done studies… Read more »

Margalit Gur-Arie
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Margalit Gur-Arie

Nate, I didn’t say anything about race (that’s in our other discussion).
Why are you always going to the fringes? If “illegal aliens” can have IRS numbers, pay taxes, have bank accounts and driver licenses, then they must have proof of residence and they didn’t just “sneak in” half dead with some dreadful illness.
MD as HELL, non profit hospitals are exempt from paying taxes in return for some charity care (another hornets nest) and there are lots of them out there.

Greg Pawelski
Guest
Greg Pawelski

There is nothing in the health care bills that changes the already stringent verification mechanisms prohibiting undocumented immigrants from being eligible for public benefits. Tax policy experts have further pointed out that it would be difficult for undocumented immigrants to even apply for subsidies because tax returns are required to determine a person’s eligibility. And conservatives obsessed with health care reform’s price tag should take note that enforcement mechanisms are expensive. So demonizing immigrants will have a high political cost on their part.

MD as HELL
Guest
MD as HELL

Great, The brave president will not cover illegals with health insurance. You can bet they will still be in the ED and will get care. That is the same as it is now. They ae not covered for payment, but the are covered by EMTALA. Margalit, the ED is not supported by tax dollars. It is supported by the hospitals and the docs eating it when people do not pay. My group presently collects about 30 cents on the dollar. Our biggest deadbeat is Medicare fleecing us with low payment. Next is Medicaid. Next is TriCare. At least I can… Read more »

Nate
Guest
Nate

your smarter then that Margalit and not nearly that dishonest. Obama wants to make it law that insurance companies must sell them a policy outside the exchange. At the same time he will make it law that they can’t have pre-existing and lifetime or annual maximums. He also advocates community rating. THe problem isn’t the illegal that buys health insurance when they are healthy and don’t need it. Obama wants to open a huge freaking door for sick citizens of other countries to sneak into America just to buy insurance to treat conditions they already have. You can’t make up… Read more »

Margalit Gur-Arie
Guest
Margalit Gur-Arie

Can we please stop this “illegal aliens” charade? If all “illegal aliens” were to disappear tomorrow, we would be drowning in garbage, unwashed dishes and rotting crops, to name a few. These folks are here to stay. The IRS is perfectly willing to collect taxes from them, some banks will happily open accounts for them and some states are issuing driver licenses or certificates. So why shouldn’t they be able to purchase health insurance? Is it better to treat them in the ED at tax payers’ expense? Not to mention the hypocrisy of collecting taxes from people that have no… Read more »

Tim
Guest
Tim

from Dr. Weinstein: “The “You’re a liar” remark was in response to the president’s assertion that the public option would not be available to those who are here illegally. So let’s look at the veracity of this statement. While technically correct (3 of the 4 proposed bills do explicitly exclude illegals), the fact is there is no verification procedure proposed. The federal government would undoubtedly adopt a don’t ask, don’t tell policy vis a vis citizen verification, just as it does for most social programs. The result would be plenty of illegal aliens signed up for the govt option.” Of… Read more »

Nate
Guest
Nate

let me amend that;
there is substnatial savings garnered by moving seniors from FFS to MA in high cost and urban areas

Nate
Guest
Nate

Maybe we need a trigger for Medicare? 6/28/07 from Orszag “Previous work by CBO has shown that plans’ bids for operating Medicare Advantage plans vary less from county to county than per capita FFS spending does (see Table 1). As a result, in areas with high FFS costs per capita, Medicare Advantage plans’ bids are relatively low in comparison with FFS spending, and vice versa. In particular, in areas with the highest per capita FFS spending, health plans’ bids are about 9 percent below FFS spending. By contrast, in the lowest-cost FFS areas, health plans’ bids are about 16 percent… Read more »

Ausitn Frakt
Guest

Sorry. Meant to sign that last one with my name, not the name of my blog. Apologies for any confusion.

The Incidental Economist
Guest

I promise to come back later (few days?) to sum up some reaction to comments. Just a quick one now in response to Maggie Mahar. She wonders about the headline and seems to ask who is responsible for it (I’m reading in to her “Matthew ?????” line). While the headline is mine in the sense that it appears on my own blog, I actually didn’t ask or intend for it or this post to appear here at all. It was posted on *my* blog first and The Health Care Blog picked it up based, I guess, on a courtesy e-mail… Read more »

Nate
Guest
Nate

Rick how about the CBO? “In contrast, payments to HMOs averaged 10 percent above FFS costs,MedPAC estimates. On average, HMOs offered extra benefits and rebates equal to 13 percent of FFS costs; those additional benefits reflected the difference between the benchmarks (which averaged 10 percent above FFS costs) and plans’ bids (which averaged 3 percent below FFS costs).” If the boss or clients need more I’m for hire. I charge to much and am an ass but the ROI is incredible. Clients that listen to me have trend about equal to inflation. There was a much better and in depth… Read more »

maggiemahar
Guest

Austin: I’m sorry to see yet another headline suggesting that President Obama lies. (Or tells half-truths.) I realize that ultimately you say: ” the truth is that under his plan a small fraction of Medicare beneficiaries will lose their MA benefits and/or face higher costs. However, the potential savings are enormous and research shows that the benefit cuts needed to achieve them will not be terribly missed.” This is entirely true. So why the Fleet Street headline? (Matthew ?????) We’re in a situation where people are carryig Signs that say “Bury Obama with Kennedy.” We don’t need more headlines to… Read more »

bev M.D.
Guest
bev M.D.

Oh, and since I applaud the trend toward commenters asking for authoritative sources for other commenters’ assertions, here is a link to the CDC website regarding both seasonal and H1N1 (swine) influenza. You can navigate around the site to have other questions about flu answered.
http://www.cdc.gov/h1n1flu/recommendations.htm