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There's No Such Thing as a Free Donut

Posted By Robert Moffit On June 8, 2010 @ 11:00 am In Obamacare | Comments Disabled

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President Obama, joined by HHS Secretary Kathleen Sebelius, is holding a televised Town Hall Meeting today [2] on the benefits of his big health care law with senior citizens in Wheaton, Maryland. The President’s public relations offensive will be coordinated with unions and a bevy of liberal interest groups, ranging from the AARP to the National Gay and Lesbian Task Force. The President’s appearance is specifically designed to put the national spotlight on a “ milestone”  provision of the unpopular national health law: A $250 rebate to help senior citizens pay for prescription drugs if they should find themselves in the so-called “donut hole”. The “donut hole” refers to the gap in prescription drug coverage where seniors, after reaching a certain spending limit, are required to pick up 100 percent of the drug costs, until they  reach a catastrophic threshold and then regain full coverage.

Curiously, the “Donut Hole” that the new rebate is starting to “fill up” is the federal government’s creation in the first place. There was nothing quite like it in “nature.” Instead, it was designed by Congress in 2003 to shave the cost of the newly created universal Medicare drug entitlement, and thus help the Congressional Budget Office numbers come out right. Sound familiar?

Back then, the Heritage Foundation’s health policy team relentlessly criticized Republicans for creating a reckless and unnecessary new entitlement, and scoffed at the bizarre Congressional benefit design. Heritage was soon vindicated when the Medicare Trustees revealed that the drug entitlement alone would add $8 trillion to Medicare’s unfunded liability.

Today’s event is high powered Presidential showmanship for entitlement politics. But the dynamics of entitlements always follows a familiar pattern. Promise folks something for nothing, or a little for a lot. Promise universal generosity; shower benefits up front, and then run up big debt. ( In Medicare, right now, the long-term debt, sometimes called the unfunded liability, has already reached a breathtaking $38 trillion.) Faced with rising entitlement costs, the politicians go through their gyrations. But, in the end, they start cutting payments for services, either surgically or with the budget meat ax, on the back end.

In the case of the President’s giant health care law, there is nothing subtle about any of it. First a few benefits today, then the big cuts tomorrow. The initial $250 rebate will doubtless be a welcome relief to those burdened with a goofy government benefit design, which Congress should have never created in the first place. (In Obamacare, all health benefits, private and public,  will be subject to government manipulation.) But it’s small change for Medicare back end cuts that are going to play havoc with seniors’ benefits. As we at Heritage have warned [3], Obamacare is going to have a very big and unpleasant impact on senior citizens. For example:

Access Problems and Benefit Cuts. Throughout the debate, the President and Administration spokesmen insisted that the roughly one half trillion dollars in Medicare payment cuts would not result in benefit cuts. But few serious analysts believed that this was even possible. For example, CBO Director Doug Elmendorf told the Senate last summer that the proposed Medicare cuts in the Senate version of the legislation would, in fact, result in …..benefit cuts.

Now that the legislation has been signed into law, Richard Foster, The Chief Actuary at the Center for Medicare and Medicaid Services (CMS), says the new law’s Medicare payment cuts  could end the participation of some providers, would make an estimated 15 percent of hospitals unprofitable, and jeopardize the access of seniors to health care.

Less Choice. Look for a bigger negative impact on Medicare Advantage health plans, the plans that today cover almost one in four seniors. According to the CMS Actuary, Medicare Advantage cuts are going to decimate that program: the Actuary projects that enrollment in those plans would be cut in half over the next ten years, falling from an estimated 14.8 million to 7.4 million. Seniors who like their health plans that they have today will be in for a rude awakening.

More Payment Cuts. The new law creates a 15 member Independent Payment Advisory Board. [4] It will make Medicare payment policy, and sets up a process to make them go into effect, unless Congress enacts an alternative set of recommendations. The Board’s statutory objective is to reduce the per capita growth rate in Medicare spending. OK. But cutting costs will not come not through some politically incorrect introduction of free market forces. Instead, the law envisions a ratcheting down of reimbursement the old fashioned way through administrative fiat. By 2015, Medicare payment is to grow according to measures of inflation. By 2019, it is to grow at GDP, plus 1 percentage point. Like the current Medicare physician payment formula, another mess Congress created, the Medicare payment will not reflect the supply and demand for particular medical services in a market. It just mean more payment cuts. The provision is advertised as avoiding rationing. But you can’t get more of something if you pay less for it. And, dear senior citizens, that means there is going to be less. Enjoy today’s theatrics, and savor that nice, little rebate.


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URL to article: http://blog.heritage.org/2010/06/08/theres-no-such-thing-as-a-free-donut/

URLs in this post:

[1] Image: http://www.foundry.org/wp-content/uploads/donut.jpg

[2] televised Town Hall Meeting today: http://www.washingtonpost.com/wp-dyn/content/article/2010/06/08/AR2010060800872.html

[3] As we at Heritage have warned: http://www.heritage.org/Research/Reports/2010/05/Obamacare-Impact-on-Seniors

[4] 15 member Independent Payment Advisory Board.: http://www.heritage.org/Research/Reports/2010/05/Obamacare-Impact-on-Doctors

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