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Obamacare, Save Money? Not Likely.

Posted By Kathryn Nix On November 16, 2010 @ 2:00 pm In Obamacare | Comments Disabled

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Newly-elected conservatives heading to Washington next year have a lot to do to curb the size of government and get federal deficits under control.  Requisite to achieving these goals is the full repeal of Obamacare.

According to Peter Orszag [2], former Director of the Office of Management and Budget under President Obama, leaving the health law intact would create savings.  But this couldn’t be farther from reality.

Orszag claims that Obamacare will reduce the federal deficit and Medicare spending.  What isn’t mentioned is that, though it’s true that spending on Medicare will be reduced by $575 billion over the next decade, savings are used to offset spending on new programs.  So really, there are no savings at all.

Moreover, proponents of Obamacare expect the new law to reduce spending by cutting provider reimbursements and expanding bureaucracy through top-down delivery system changes aimed at increasing efficiency in the system.  In reality, the former will negatively affect seniors’ access to quality care, while the latter will be flat-out unsuccessful at reducing spending.

Obamacare reduces payment updates for hospitals and other providers under Medicare.  But rather than changing the value of the service provided, cutting how much Medicare pays does nothing but shift costs elsewhere.  When payments become too low, providers stop accepting Medicare patients altogether.

Medicare’s Chief Actuary reports that [3], “providers for whom Medicare constitutes a substantive portion of their business could find it difficult to remain profitable and, absent legislative intervention, might end their participation in the program (possibly jeopardizing access to care for beneficiaries).”

In light of these consequences, cuts to Medicare are unlikely to occur, especially if Congress’ perpetual delay of currently scheduled physician reimbursement cuts is any indicator.  Last summer, Congress delayed cuts to physicians payments for six months to avoid jeopardizing seniors’ access to care, and they will have to act again in the near future to again avoid this negative outcome.  If the cuts don’t occur, Obamacare would substantially increase the federal deficit

Obamacare also includes the creation of the Independent Payment Advisory Board, which Orszag describes as a “panel of independent experts who will look for more ways to improve Medicare’s cost-effectiveness.”  But the IPAB’s recommendations are strictly limited to implementing further detrimental cuts to provider payments.

The new health law also includes an attempt to create savings in Medicare by rooting out inefficiency.  Obamacare includes a pilot program to test accountable care organizations (ACOs), and the creation of the Center for Medicare and Medicaid Innovation, which will vet pilot programs and demonstration projects for widespread delivery system reform.  Just as the IPAB’s recommendations will automatically go into effect, the Administrator of the Centers for Medicare and Medicaid Services will be able to implement chosen strategies nationwide without further action from Congress.

Not only do these changes represent a massive increase of power within the Medicare bureaucracy, but they are also likely to be ineffective.  Health policy and budget expert James Capretta writes that [4], “there is nearly half a century of experience with the Medicare program indicating that con­fidence in ‘government-engineered’ efficiency improvement is entirely misplaced. Efforts to control costs from the top-down have always devolved into price setting and across-the-board payment-rate reductions, which is detrimental to the quality of American medicine. Price controls drive out willing suppliers of services, after which the only way to balance supply and demand is with waiting lists.”

The new law will be ineffective at increasing efficiency, instead succeeding only at creating further bureaucratic micromanagement of seniors’ care. The only way for the new Congress to eke out savings from health care is to repeal Obamacare and replace it with bottom-up, consumer-driven approach to reform.


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URL to article: http://blog.heritage.org/2010/11/16/obamacare-save-money-not-likely/

URLs in this post:

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

[2] According to Peter Orszag: http://www.nytimes.com/2010/11/04/opinion/04orszag.html

[3] Medicare’s Chief Actuary reports that: http://www.cms.gov/ActuarialStudies/Downloads/PPACA_2010-04-22.pdf

[4] Health policy and budget expert James Capretta writes that: http://www.galen.org/fileuploads/Galen_Entitlement_Reform.pdf

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