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The Other Medicare Report

The release of this year’s Medicare Trustees report was unprecedented. As noted in previous posts here and at my blog here and here, Medicare’s chief actuary not only refused to sign off on it, he disowned it — encouraging readers to ignore it and focus instead on an alternative report, prepared by the office of the Medicare actuaries.

So what’s the difference in the two reports? It all relates to the health reform bill that passed last spring. The formal trustees report shows health reform dramatically reducing future Medicare spending. In fact, it is so dramatic that even the White House seems reluctant to talk about it — perhaps because it’s prima facie unbelievable.

Consider this: In 2009, the trustees reported that (looking indefinitely into the future) Medicare had an unfunded liability of $89 trillion. This year, the trustees report that number has fallen by more than half to $36.6 trillion. If the numbers are to be believed, health reform has already saved us $53 trillion — a sum more than three times greater than our entire gross domestic product!

To put this in perspective, note that during the debate over ObamaCare, Republican opponents complained about $500 billion in new taxes over the next 10 years. Yet if the trustees report is accurate, the health reform act is going to save the taxpayers more than 100 times that amount in present value terms!

While the White House has been reluctant to tout this accomplishment (preferring instead to trumpet something relatively trivial: 12 years added to the life of Medicare’s (Part A) trust fund), New York Times columnist Paul Krugman has shown no such restraint. After reprinting the graphic below from the trustees report, he announced that “health reform was the biggest move toward fiscal responsibility in a long, long time.”

Picture 53

The trouble is, neither Krugman nor the administration nor even the most avid supporter of the Affordable Care Act has ever given a plausible explanation that could even remotely account for spending cuts of this size. That’s why you need the alternative report.

It is there that we learn that the trustees formal spending projections assume that Medicare doctors fees will be cut by 30% over the next three years. Then going forward, the cuts become even more severe. As the following chart shows:

  • By 2019, Medicare fees on the average will be less than what Medicaid pays and will fall increasingly below Medicaid rates in the succeeding years.
  • By 2050, Medicare rates will be half of what the private sector is paying; by 2080 they will be only one-third.

Picture 54

What is being envisioned here is Medicare traveling a completely different path from the rest of the health care system. As the rates fall further behind what everyone else pays, the elderly and the disabled would have increasing difficultly seeing a doctor or finding a hospital willing to admit them. And this will be especially true with 32 million newly insured paying much higher fees — about half in private plans and half in Medicaid. According to the Medicare actuaries:

  • About one in seven facilities — hospitals, skilled nursing facilities, home health agencies, and hospices — will become unprofitable and risk bankruptcy by 2019.
  • By 2030, one in four will become unprofitable.
  • By 2050 it will be 40%.

Now if you are having one of these “aha moments,” that’s understandable. There is no cost control method anywhere in the world that beats not giving people care in the first place.

The problem for the administration is that the Trustees report is too good. It’s embarrassingly good. It’s so good that no one in his right mind would ever believe it, unless you believe the country will accept that an elderly and disabled population are facing increasingly severe rationing and getting a quality of care well below what the rest of the nation has access to.

John C. Goodman, PhD, is president and CEO of the National Center for Policy Analysis.  He is also the Kellye Wright Fellow in health care. The mission of the Wright Fellowship is to promote a more patient-centered, consumer-driven health care system. Dr. Goodman’s Health Policy Blog is considered among the top conservative health care blogs on the internet where pro-free enterprise, private sector solutions to health care problems are discussed by top health policy experts from all sides of the political spectrum.

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22 replies »

  1. Awesome, I finally discovered a blog about this! I was daydreaming about it yesterday. Well technically night time dreaming because it was night time (lol) and now I discover this post. I find this post very interesting thank you for sharing I just added your blog to my bookmarks and will check back. I Might be checking back again!

  2. I didn’t come back to this until today, so I’m sure almost no one will read this, but for posterity’s sake: Nate, you are truly and totally out to lunch.
    Both John Goodman was explicitly talking about lower Medicare per recipient expenditures and their impact on providers, and that was the point I responded to. The disagreement concerned whether providers, not private insurers, could adapt to lower per patient Medicare payments. Nobody was talking about private insurers and whether they would be able to lower premiums. John assumed providers couldn’t adapt, while I asserted that they would. I’m sorry you don’t read very well. If there is anything looking back that I could have been clearer about, it was only that at one point I could have written “health care provider markets and organizations” instead of just “markets and organizations.” But in the context that was clear, unless you wanted to obscure it, as you did.
    My position is more in keeping with market philosophy and common sense. John’s was just made up to suit his political rant.
    Here is the entirety of my argument:
    But if it is true that Medicare will reduce its per recipient expenditures over the next several decades compared to the current trend, markets and organizations will adapt. Processes will become leaner of necessity. If hospitals across Europe can function on the rates Medicare is projected to pay after reform, then so can hospitals in America. They will have less of some of the high-end amenities that were added during the building boom of the last few decades, but they will have quality levels that exceed those of today nonetheless. Physicians are almost certainly going to be paid less (on a relative basis), but it will take a long time before they are paid in the US what they get in Germany, France, Australia or Japan. Most working today will be retired before then.
    Explain to me again how private insurer mandates on what is covered contradict any of this.

  3. I forget which one but one of the states has some very strict tele-medicine laws which prevent providers from getting a lower cost structure.

  4. not to pile on your incorrect argument jd but how about the laws that prevent PCPs from directly accepting capitation from groups or individuals without an HMO license. That would be another very clear example of laws that prevent providers from getting a lower cost structure.
    Capitation would eliminate a lot of the billing and collection providers complain about. Or are you going to call this insurance and not count it?

  5. “First, we were talking about providers not insurers, so coverage requirements don’t matter. A non sequitor.”
    My bad, I apologize when you said;
    “expect Medicare to follow a very different cost trajectory from Medicaid and private insurance.”
    “Medicare will reduce”
    “markets and organizations ”
    ” health care organizations and markets ”
    “Medicare actuaries ”
    If I had paid closer attention I would have realized these were all references to providers.
    Curious you don’t believe payors being required to pay for something or not effects what providers offer and how they offer it?
    “You can’t find laws that prevent providers from getting a lower cost structure.”
    well JD speaking of being out to lunch I would counter that states with strong pro union laws prevent providers from tackling the very wage disparity you yourself mention. Why don’t hospitals in CA push nurse wages to German levels, Union laws.
    Have you ever heard of CON? More beds, to a point, get cheaper each time you add one. Your spreading cost over a larger base, CON prevents them from adding these beds and lowering their cost structiure.
    Those are two off the top of my head while munching on lunch, sure I could come up with a dozen more to prove you wrong if you like.
    “but the reality is that costs are so high in the US because they can be, not because they have to be by law.”
    Are we still only talking about providers cause I could name a whole lot of laws that make it more expensive if we add insurance to the mix.
    Intrusive and poor laws lay the ground work for inefficent care. That is on both provider and insurer side. Substantial savings with no degragation in care could easily behad by undoing most of the laws passed in the last 45 years.

  6. Nate, I almost didn’t reply because you are so out to lunch on this:
    “Its hard to adapt when the government makes adaption illegal. Employers could cut the cost of healthcare substantially if they weren’t forced to cover fertility, mental health parity, and other political benefits. It’s not a failue to adapt when your forced to comply.”
    That is deeply confused and I know from experience that you will refuse to lift the cloud, because the first priority for you is to be an ideological warrior. But here goes:
    First, we were talking about providers not insurers, so coverage requirements don’t matter. A non sequitor.
    Second, there are plenty of examples of hospitals and physician groups that have a low cost of doing business and survive just fine on Medicare level payments. Not just in other nations (which are heavily regulated!), but in the US. We’ve looked at many of the examples on this blog.
    You can’t find laws that prevent providers from getting a lower cost structure. Some laws make it more difficult in one respect or another (quality control regulations are like that), but the reality is that costs are so high in the US because they can be, not because they have to be by law. Misunderstand me if you must.

  7. “could you tell me the net impact of people being sick to the GDP?”
    I have never seen a statistic that claims to measure that which I would give even an ounce of creditablility to. I have seen some that say smoking cost american businesses 20 billion a year. Days not missed sick would only then be vacation days. If you hire a temp to fill in for an FMLA leave you are adding employement which usually leads to compensation which usually leads to consumption. I would argue anything short of a pandemic has no effect or a positive effect on GDP. Now that I say that I would more strongly argue for an increase, a person working in their place and the sick person consuming healthcare both increase GDP. I have never seen a study follow it that far though, they purly measure the cost of sick days.
    “You did not mention who pays when mental diseases are not covered.”
    ADHD was not treated for 1990 years post Christ. Who paid for all those kids that went untreated? No one, there was nothing to treat. I don’t beleive an imaginary condition with no physical manifistations has a cost for non treatment.
    Indiscussing the increase in codes to be fair most of those are for discriptive reason, left arm and right arm now have different codes, that isn’t the same as new illnesses.
    I would like to see the list of these 7000 rare diseases. I would bet a number of them would have no negative impact if left untreated. A large number of your depression treatments are nothing more serious then I’m lonely and someone else will pay you to talk to me. That’s not to say serious depression isn’t real and shouldn’t be treated but the majority of cases are not.
    “I have a question back as to what happens when we don’t pay, what is the net impact and who pays when.”
    What did 70 year old guys do before viagra, they didn’t have sex. There was no drain on the economy, they didn’t suffer through terrible lacking lives.
    What did infertile couples do before expensive fertility treatments, they adopted or didn’t have kids. again there was no cost for non treatment.
    I’m not sure if your asking my opinion or have a point to make, do you think not treating these conditions would have a negative impact on GDP?

  8. Nate you have misled the questions. Some people have strong immunity and some not. Out of job does not necessarily mean inactive. And people don’t fall sick to have fun. So keeping politics apart, could you tell me the net impact of people being sick to the GDP?
    For mental health you once again you mentioned diminishing returns. That could only mean that treatment is more expensive than benefit. You did not mention who pays when mental diseases are not covered.
    If identifying new codes would lead to more treatement and expense then ICD10 would be a killer to take from 13K codes to about 64K disease codes. Perhaps you didn’t know that 30 million Americans suffer from 7000 rare diseases. Now to you they all might be fancy wannabe sickos discovering new ways to be sick and best way to deal with this is to not even create codes for these conditions.
    I don’t want to get into medical debate here as I am not very convinced about your medical abilities but just stick to economic aspect.
    You have long running theory about why we pay for this and that. I have a question back as to what happens when we don’t pay, what is the net impact and who pays when.

  9. Wendell you don’t seem to know how to construct an accurate analysis. Why is Canada better? I;m assuming your basing your subjective judgement meerly on cost. Seeing as how we have greater access and higher quality can’t imagine how else you would rate them better.
    If your sole measure is cost why is their cost lower? Single payer is an administrative function that only effects a couple percent of the cost.
    Rationing on the other hand, not making service available so it can’t be consumed effects 80-90% of the total cost. Y&ou can ration under single payor or multi payor.
    Price Controls, again this effects the majority of the cost, and once again is independent of the payor model.
    That big smack you just felt upside your argument was facts, I know your not very familiar with them so I thought I would introducxe the two of you.
    As much as I would love to see you try to argue your way around these facts I expect that was the last we will hear from you on this subject.

  10. “Are we suppose to ignore the fact this has never actually happened Wendell?”
    As usual with Nate, the facts never seem to matter. The Canada healthcare system is a perfect exemplar for the USA of how/why single payer/insurer works much better than the USA system.
    These and similar facts of course have been adduced for decades, but vested interests and ideology protecting the vested interests continue to triumph, but that will eventually end.

  11. “but the realization that single payer/insurer saves vast amounts of money”
    Are we suppose to ignore the fact this has never actually happened Wendell? In your alternate reality do we all just close are eyes and chant its cheaper its cheaper and the cost will magically reduce?
    Or maybe your counting on the law of averages? 100 previous single payors failed the next one is bound to succeed.
    “the invisible elephant in the room or one which no is willing to debate is productivity. One reason being it’s utterly hard to link it to better or poor health.”
    I think there have been numerous studies linking inactivinty and poor health. Those that get paid not to work have far more time to get sick. Those that have to make a living oddly don’t seem to come down with as much illness.
    “Nate- what is the cost of not covering mental health and who pays for it?”
    diminishing returns. I don’t recall the exact figures so ignore those and see the point I try to make. Prior to mental health parity 1.0 there was 1000 mental health diagnosis. Now there is 4000. Many of the 3000 newly discovered illnesses are of questionable validity. Being “recognoized” though they now must be covered. The same people that get paid to treat these new found “illnesses” are the same ones that get to certify they exist. Treating the original illnesses had value. 2900 of the new 3000 are just wasted money, fraud by any other definition.

  12. I asked for GDP projections on purpose. It’s regretful that so many of healthcare experts have little interest in economy. Anyway the connection is that the way debt was handled earlier in aftermath of war and depression was through rapid expansion of GDP.
    If we are looking at it purely from economic point of view the invisible elephant in the room or one which no is willing to debate is productivity. One reason being it’s utterly hard to link it to better or poor health.
    Just because the benefit is so widely dispersed it doesn’t get measured and get credit for. Just like the oil in gulf now broken into billions of globules which now no one can measure.

  13. “The three are likely to be even more closely tied together in the future, not less.”
    Not only that, but the realization that single payer/insurer saves vast amounts of money to the public will eventually permeate the consciousness of the average citizen, not to mention the normally dense Congress member.
    Republican politicians, were they not utterly blinded to reality by their nonsensical ideology, would have their cake and still be able to eat it, were they to think about the virtues of single payer/insurer in regard to reduction in cost to small or large business and start promoting the concept from that perspective.
    The “concept” is a reduction in “burden” from the governmental mandate that private insurers exist even while private insurers do nothing other than saddle the citizenry with vast costs for the private benefit of insurer employees and shareholders.

  14. According to emails that I get from The White House, “we” have capped the oil leak and are “turning a corner”. So as far as fixing health care and PPACA, apparently it isn’t a convenient truth to be promoting these faux results.
    Now maybe one can see the absurdity of the Dartmouth Atlas findings, as when you apply their potential implications to policy, and extrapolate…this is what you get. Garbage in…garbage out.
    I expect to get the “we are turning the corner” email from The White House about health insurance reform any day now, and certainly before the mid terms.
    Figures don’t lie…liars figure!
    John

  15. ” it is very odd that John doesn’t believe health care organizations and markets can adjust to new economic conditions over the course of several decades.”
    Its hard to adapt when the government makes adaption illegal. Employers could cut the cost of healthcare substantially if they weren’t forced to cover fertility, mental health parity, and other political benefits. It’s not a failue to adapt when your forced to comply.

  16. John seems to believe in markets except when it doesn’t suit him.
    I agree that it is unrealistic to expect Medicare to follow a very different cost trajectory from Medicaid and private insurance. The three are likely to be even more closely tied together in the future, not less.
    But if it is true that Medicare will reduce its per recipient expenditures over the next several decades compared to the current trend, markets and organizations will adapt. Processes will become leaner of necessity. If hospitals across Europe can function on the rates Medicare is projected to pay after reform, then so can hospitals in America. They will have less of some of the high-end amenities that were added during the building boom of the last few decades, but they will have quality levels that exceed those of today nonetheless. Physicians are almost certainly going to be paid less (on a relative basis), but it will take a long time before they are paid in the US what they get in Germany, France, Australia or Japan. Most working today will be retired before then.
    Taken at face value, it is very odd that John doesn’t believe health care organizations and markets can adjust to new economic conditions over the course of several decades. Or is it that he thinks the Medicare actuaries he quotes (seemingly approvingly) are wrong?

  17. sorry to break the news to you Vikram but in Obama’s 4th term he does away with GDP and replaces it with our new GDA, Gross Domestic Allowance. Once 95% of the nation stopped producing anything and just lived off the 2% who do, GDP just didn’t work anymore.

  18. And since there is ability to determine future deficit, I would also like to enquire about the GDP 20 years from now.

  19. And these calculations are for indefinite period.
    Unfortunately more things we do more expensive care becomes. To reduce cost first thing to do is to close all release valves so that there is no more easy option.

  20. But, John:
    1. Krugman won a Nobel
    2. Obama is thoughtful and even contemplative
    3. It is counterfactual that there are “death panels” in the bill, and
    4. (Do you work for fox News? Are you a certified “health care journalist?”)
    5. The experts will tell us what care we need.
    Other than that, shut. up.

  21. odd, I can’t find any mention of Obama saving 40 trillion dollars on Yahoo news, AP, or anywhere else. You think they would be celebrating. Maybe Ezra hasn’t had time to discuss this in his latest Cabalist

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