It’s Time To End The Doc Fix Dance And Move On To Real Reform

By Grace-Marie Turner

If Washington is ever going to tackle entitlement reform and get federal spending under control, it must start with Medicare.

The former director of the Congressional Budget Office, Doug Holtz-Eakin, details Medicare’s fiscal plight:

Between 2001 and 2010, Medicare’s cumulative cash flow deficits totaled more than $1.5 trillion – or 28% of the total federal debt over the past decade.

But it gets worse:  By 2020, as Baby Boomers continue to age into Medicare at the rate of more than 10,000 a day, Medicare’s cumulative $6.2 trillion in cash flow deficits will constitute 35% of the nation’s total debt accumulation.

“Medicare is a fiscal nightmare that must change course,” Holtz-Eakin told Congress in testimony before the Senate Committee on Aging.  Without Medicare modernization, there is no hope of getting the federal fisc under control.

But Washington is playing a shell game with Medicare that disserves taxpayers and Medicare beneficiaries by trying to hide the real costs of the program behind Congress’ fake promises.

The shell game started with the Balanced Budget Agreement of 1997 when Congress required cuts in federal payments to physicians who treat Medicare patients in order to bring spending more in line with inflation.

But in 2003, when the cuts were scheduled to actually take place, Congress balked.  It postponed the cuts.  And it has postponed them 17 times over the last 11 years.  The temporary reprieve is called a “doc fix” in Washington parlance.  The cuts never have taken place because politicians know seniors and physicians would howl. Each time the temporary doc fix is about to expire, physicians say they will be forced to further limit the number of new seniors they allow into their practices and some say they may be forced to stop seeing Medicare patients altogether.

Congress sometimes delays the cuts for a year, sometimes for only a few months.  The American Medical Association and other physicians groups lobby Congress furiously to forestall the cuts, time after time winning a temporary reprieve.  Campaign coffers are filled, lobbyists are paid handsomely, and the game of crony collusion continues.  All at the expense of actual taxpayers and future Medicare recipients. And at the expense of serious and meaningful action to actually reform Medicare.

The doc fix problem gets bigger as time goes on because every time Congress delays the cuts, next year’s cuts get bigger.  Doctor payments would have to be cut by up to 25% without the next doc fix, which will inevitably come.  Senior lobbies will continue to mobilize, as will the entire medical provider establishment.  And the shell game will continue.

You would never know this from listening to the Obama administration’s happy talk about Medicare, boasting about the success of health reform in getting health spending under control. Officials used the recent annual report from the Medicare program’s Boards of Trustees as a hook.  The report “brings good news about the program’s financial future: Its Trust Fund will last four more years, to 2030,” the White House proclaimed on a blog post last summer.

The Medicare Trustees charged with overseeing Medicare are required each year to provide an estimate of the program’s fiscal health, and they have been bound in their projections to follow what the law says.  And the law says that every year, physician payments must be cut.

But the recent Trustees’ report acknowledged that Congress never has allowed the cuts to go into effect and is unlikely to do so in the future.

They wrote “it is a virtual certainty that lawmakers will override” the cuts “as they have done every year beginning in 2003.”  That was the first time ever that the Medicare actuaries admitted  that the “Sustainable Growth Rate”(SGR) problem—the official name for the doc fix—was a sham. It disserves taxpayers and Medicare beneficiaries to say that the cuts will take place.

The reality is that U.S. health care spending, including Medicare spending, has slowed in recent years, partially due to the recent recession and weak recovery and partially due to other more fundamental spending changes (such as higher deductible health plans requiring more out-of-pocket spending by consumers).

But the reality also is that Medicare is on an unsustainable fiscal path and real reform is vital. We need a real, not a fake, solution.

Without reform, the Trustees write in their latest report, Medicare spending “would substantially increase the strain on the nation’s workers, the economy, Medicare beneficiaries, and the Federal budget.”

There was actually a bi-partisan, bi-cameral agreement earlier this year to end the charade.  With the country crying for Washington to work together, committee chairmen and ranking members by the six key committees in both houses of Congress that deal with Medicare actually agreed to a permanent fix, but it was scuttled by Senate Majority Leader Harry Reid.

The National Commission on Fiscal Responsibility and Reform, appointed by President Obama and chaired by former Senator Alan Simpson and former White House Chief of Staff Erskine Bowles, concluded that the cuts never will take place.  It criticized the “phantom savings from scheduled Medicare reimbursement cuts that will never materialize.”  And the commission said that the phantom cuts actually make Medicare look like it is in better shape than it is.

As with all things in Washington, it comes down to money. The CBO currently estimates that repeal of the SGR would cost $138 billion over the next 10 years. Current congressional rules require that it be paid for by cuts elsewhere.  They say that it would be “new spending” to permanently get rid of the SGR.  But the reality is that Congress will never stop dodging the cuts so the real cost of getting rid of the SGR is $0 because the pretended savings would never materialize.

One could even argue that the SGR contributed to the passage of ObamaCare.  Remember that Congress’ Joint Committee on Taxation scored the law as costing less than $1 trillion and actually reducing the deficit – even though the law created another massive new government entitlement spending program.  ObamaCare was supposedly paid for by 20 new and higher taxes and also by a big chunk of cuts to Medicare.  Having the SGR on the books makes it look like Medicare will be spending less in the future than it actually will, therefore providing more room for the pretense that cuts to Medicare could help finance ObamaCare’s new entitlement spending.

Congress is pretending that Medicare is solvent because budgeteers in Washington are required to assume that Congress will, in the future, make the cuts that, in the past, they have never done. Congress won’t make the cuts, and therefore the notion that Medicare is financially sound is fiction.

It’s time to slap Congress into reality.  The SGR is a farce.  The cumulative cost of the 17 fixes that Congress has made over the last 11 years is $170 billion. Since that money never would materialize, Congress would be best advised to move on.

At its core, the SGR is price controls.  Price controls haven’t worked in 4,000 years of recorded history where they have been tried.  Even making them extraordinarily complicated doesn’t mask their failure.

It harms taxpayers to pretend that Medicare is solvent when it isn’t, and it harms the efforts toward future reform.

If Republicans were to take control of the Senate in the November elections, they should listen to the American people who are demanding that Washington stop the massive deficit spending that is driving up the federal debt. Congress must begin with the important business of true reform of the Medicare program to clear out the price controlled, bureaucratic model that has become a clunky hulk and which epitomizes colluding capitalism.

Seniors have shown they value choice and competition by flocking to private Medicare Advantage plans – plans that are on the cutting block in ObamaCare.  All seniors deserve more choice.  They should be able to take a Medicare stipend and escape to plans competing on price and value to provide quality medical care faster, better and cheaper than today’s rusting fee-for-service model.

The doc fix circus keeps Congress from focusing on real entitlement reform. It’s time to end this farce, implement a permanent doc fix, and get on with the job of getting the nation’s fiscal house in order. It can’t happen without Medicare reform and that can’t happen without getting rid of the SGR mess.

Posted on Forbes, October 7, 2014

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