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 statement 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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11 replies »

  1. @MD as HELL:
    I served 30 years as a Soldier in the United States Army. My taxes funded a lot of shit that I don’t like, but at least I EARNED my Tricare benefits. Take your fucking anger out on the welfare leeches and illegals, not someone like me.

  2. I think what most people fail to realize is what happens AFTER government starts a new program. They grow it into the stratophere with our tax dollars. This will simply be the biggest boondoggle they have attempted to date and the biggest failure waiting to happen.

  3. Equal Protection Clause: It really is a good thing.
    The truth shall set him free.
    Oh, liar, liar, liar.
    What can I say? Obama lies and does it just about as well as he campaigns.
    He claims there will be no public option. Well, we will see about that. After all, there may be no healthcare plan at all. We can only hope!
    Anyway, if a public option winds up in the bill “all legal and illegal aliens” will be covered regardless of what Obama says. He can put in big, bold print that ilegal and legal illegal will not be covered.” But they will! How, you ask? The Constitution. Good ole Equal Protection as applied to a suspect class (the illegal aliens). Just take it as the truth becuase it is somewhat complicated.
    Now think about it. Obama was a constitutional law professor while a senator in Illinois and Editor of the law review at Harvard law School. Of course he circumvented the truth and he knew he was being disingenuous. Yes, his rhetoric approached the level of a frank lie. Oh yes, Joe Wilson was right.
    We can only hope Obama will fail n his push for healthcare reform and the GOP can hold out untill the midyear elections.

  4. So if what Obama says is only slightly untrue, is that sort of like a “a litttle bit pregnant”. Seems to me that lies are not measured in size, either something is true or false.

  5. TemporaryResident,
    You are a great American, in the sprit of the founders of this great experiment which is having a bit of a loss of vision.
    I thank you, sir, for knowing what we are supposed to be about and for expressing it so well.

  6. President Obama,
    I have apx. 6,ooo dollars a year to live on; will you force more money from me?
    My religion forbids human medical treatment; will you violate my religious freedoms?
    Nutritional therapy works to STOP disease; will you make me into a sick prescription drug addict, like my mother?
    Will you continue to let FDA criminalize people for wanting to be healthy; by (FDA) illegalizing natural nutrients that without make a nation sick?
    Will you continue to forbid proven cures from other countries, for long standing diseases, to come to our alleged civilized nation.
    Will you jail me for refusing man made drugs that kill more people than the diseases themselves?
    Will you jail me for being healthy and not needing your brand of ‘health care’?
    Must I now fight ‘you’ to keep my freedom? If you can’t destroy America from outside do it from within?
    You were not hired to police me, you were hired to serve and protect me. My country runs just fine without you. It always has; why do you imagine is the reason your political party pushed and got a cap on the number of years one person can be a president.
    The president does NOT run this country; WE the people do.
    Stop listening to your godless chatterers and seek the still small voice of your Creator: or be fired by the ‘WE’.

  7. Okay Marty, I’ll tell the truth. “We’re in a situation where people are carrying signs that say “Bury Obamacare with Kennedy.” We don’t need more headlines like this to help fuel wing-nuts’ hatred.

  8. Yes we have the greatest healthcare in the world, what you all forget to say is that it is great for those who can afford it, I have good coverage through my employer, I am willing to pay more taxes to cover those who don’t have a plan, we already pay for these people when they go to the emergency room, what would Jesus say? a nation can be judged by how it takes care of those who can least take care of themselvs

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