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Double Count of Irony in Republican Arguments About Medicare

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I advise a group of dynamic, progressive physicians in Doctors for America. In a tough political climate, I am heartened by the energy, skill, and commitment of DFA members. Many are -- or soon will be -- key leaders in reforming national health policy, and in improving the quality of care delivered within their own practices, hospitals, and other care settings.

DFA's has a nifty blogsite, which includes a nice column by Dr. Ram Krishnamoorthi. He tackles Senator Mitch McConnell's factual misstatements about health reform. An internist in Chicago, Krishnamoorthi demonstrates that McConnell is not to be trusted on the factual merits, especially regarding Medicare.

There is irony in Republicans' emergence as supposed defenders of Medicare. This fits uneasily with their history of opposing the program at its birth, with repeated Republican efforts (some reasonable, some not) to reduce Medicare spending growth, and especially with current Republican proposals to alter Medicare by turning it into a voucher-like program.

Unfortunately these efforts are gaining political traction in these sour economic times. Last October, The New Republic's Jon Chait summarized Republican criticism of the Affordable Care Act as an odd hybrid of two positions. First, the government should not subsidize health insurance for people who can't afford it; we should not spend money to cover almost 50 million people who go uninsured. And then second, not one dollar of Medicare's exploding projected budget should be diverted to serve other social needs.

As a matter of political philosophy or simple logic, these positions don't mix. Yet as Chait notes, this pincer attack from opposing ideological extremes offers "maximum demagogic potential" in rallying millions of ambivalent seniors who were at once professed conservatives and recipients of our most costly entitlement program. (Republicans are pursuing much the same strategy with medical professionals--seeking to identify ACA with every unfavorable health system feature or trend before new law's main features even come into effect.)

The same rhetoric offers a potent rallying cry for the 2010 midterms, whose voting electorate will be markedly older, whiter, and more conservative than the full voting-age population. Republicans have added other politically potent logical inconsistencies, too: attacking health reform for not doing more to cut the deficit and to cut entitlement spending while opposing every specific effort to raise revenue or to restrain cost growth, accusing health reform of "micromanaging" American health care and then attacking it for across-the-board measures to control costs.

Some partisan disputes are ideological. ACA includes modest tax increases on the affluent, such as the 0.9 percent Medicare tax increase on wealthy people. I believe that these modest tax increases on individuals making more than $200,000 and families making more than $250,000 are quite reasonable, especially in light of the unfunded and excessive Bush tax cuts.

Many partisan disputes reflect ACA provisions that command wide support among policy wonks in both parties, but that provide a political opportunity because they bother organized constituencies on both the supply and demand sides of the medical economy.

Medicare Advantage provides one obvious example here. This private-insurer-led program was originally touted as a more disciplined and innovative alternative to traditional fee-for-service Medicare. Sadly, MA turned out to be less efficient than the program it was intended to supplant. As these higher costs became apparent, participating HMOs were granted average annual overpayments of about $1,000 for each of the 11 million Medicare Advantage recipients. That's serious money, particularly within a Medicare program facing long-term cost challenges.

Before President Obama took office, congressional experts and Medicare actuaries expressed dismay over these added costs. Yet of course, some of these overpayments are passed on to consumers through added services. Although the entire Medicare population helps to finance these arrangements, your favorite conservative economist could explain why the 23 percent of recipients who sign up for MA aren't complaining. You don't need an economist to guess the perspective of the participating HMOs.

ACA reduces these overpayments, with predictable political results. Thus, Wyoming Senator John Barrasso writes to the New York Times:

President Obama's new health care law takes more than $500 billion from Medicare and spends it all to start a new entitlement program for the nonelderly. The most severe cuts affect Medicare Advantage....

Seniors aren't fooled. These cuts will have a direct impact on their health care. Costs will go up, and quality and availability will go down.

In Friday's Washington Post, former HHS Secretary Michael Leavitt made very similar points, reflecting Republicans' enviable message discipline. He lambasted the Obama administration for cutting Medicare Advantage, and went on to say:

The problem begins with double counting. The Congressional Budget Office estimates that the health law will reduce Medicare spending by about $450 billion over 10 years. But all of those savings, plus massive tax increases, are used in the new law to pay for an expansion of Medicaid and a new entitlement program to subsidize insurance premiums for low-income households.

This double-counting charge is a bit vague. ACA reduces the deficit, and it reduces future Medicare spending. Is it double-counting to take credit for both things, when some of this reduction in future spending will be used outside of Medicare, for example to help finance insurance coverage for all Americans?

One might dismiss this question as reflecting a sudden double-standard. The Center on Budget and Policy Priorities rightly points out that the Obama Administration presents budget numbers in precisely the same manner that elected officials from both parties always have. There is nothing dishonest or unusual here.

At another level, though, Leavitt's comments deserve a serious answer. Numbers don't speak for themselves. Every budget figure has a politics behind it, and politicians on all sides accidentally or intentionally misrepresent what the numbers mean.

Health reform sought to address three distinct but overlapping fiscal challenges.

First, it sought to reduce our structural deficit, which is strongly driven by health care costs. The Congressional Budget Office provides the best answer to this question. CBO estimates that ACA will result in "$143 billion in net budgetary savings over the 2010-2019 period," with larger impacts on the deficit in later years. This is the most important metric through which to judge ACA's overall budgetary impact.

Second, as a matter of accounting, ACA seeks to shore up the Medicare Hospital Insurance Trust Fund. In some ways, this fund is an accounting artifice. Still, its ebbs and flows provide a valuable gauge of Medicare's long-term fiscal balance, specific outlays and revenues. Here's what Medicare trustees report about the program's balance sheet:

...the Hospital Insurance (HI) Trust Fund is now expected to remain solvent until 2029, 12 years longer than was projected last year, and the 75-year HI financial shortfall has been reduced to 0.66 percent of taxable payroll from 3.88 percent in last year's report. Nearly all of this improvement in HI finances is due to the ACA.

It would indeed be double-counting to add CBO's $143 billion figure to the Medicare cost reductions reported by CBO. I don't see people doing that.

It's true that CBO and the Medicare trustees lay down an implicit political marker. Congress and presidential administrations need to actually carry out the cost-cutting presumed in these analyses.

This brings us to our third challenge: our long-term ability to control Medicare and other health spending, and to strike a better balance between health care expenditures and expenditures to meet other social needs.

If politicians treat future Medicare cost controls with the same lack of seriousness they have treated provisions such as Medicare's perennial "doctor fix," we won't control costs. This has nothing to do with health care reform. Congress would face exactly the same challenge had ACA failed to pass. Fortunately, our cost control record is better than cynical observers might think. To many medical providers' regret, Congress has enacted, and has held to, painful measures such as the Balanced Budget Act.

ACA created a platform to make progress. Some political heavy lifting remains to be done.

Republicans such as Leavitt and Barrasso offer conspicuously little to meet this third challenge. Their rhetoric establishes an implicit standard that every dollar saved in Medicare must be ploughed back into the program. Although this provides a patina of fiscal conservatism, it implicitly locks in place our unbalanced fiscal priorities, whereby rapid Medicare cost growth is crowding-out efforts to meet other critical social needs.

Leavitt lambastes ACA for every specific measure that constrains cost growth, while at the same time he attacks ACA for its failure to cut more. Thus, he complains that hospitals will be squeezed; then, a few paragraphs later, he complains that the Independent Payment Advisory Board won't touch hospitals until 2020. He makes no mention of politically difficult measures such as the tax on high-cost health insurance plans. Especially when one considers that ACA passed with zero Republican support, its cost-control elements would have been politically impossible, except as a part of a broader package to address the problems of the uninsured.

What is Leavitt's implicit reference point? He says:

What's needed is a new vision for Medicare. Instead of micromanaging prices, the federal government should provide oversight of a marketplace in which cost-conscious seniors choose among competing insurance and delivery system options. That's how the new drug benefit works, and costs have come in much lower than expected because genuine price competition drives down costs much more than any payment regulation can.


Let's start with the new drug benefit, Medicare Part D. The program's estimated long-term unfunded liabilities exceed $7 trillion. Amazingly, this is estimated to exceed the unfunded liabilities of the entire Social Security system. Part D included (until health reform) sloppy features such as the donut hole. It forbad strong government bargaining over drug prices. In just about every way, Part D is less fiscally responsible and less carefully crafted than this year's health reform.

Then there is Leavitt's vision of consumer empowerment.

There is definitely a group of healthy, relatively affluent people who could assume these responsibilities and risks. I'm intrigued to see how these consumers would behave differently--say towards knee replacements and CAT scans when their own money is on the line.

Still, it's far-fetched to believe that consumer empowerment can markedly lower Medicare costs. Even if this vision were politically feasible--which it is not--I see little evidence that it could effectively control costs. After all, this is the animating vision behind Medicare Advantage.

Medicare Advantage participants are also relatively healthy. Ten percent of Medicare recipients account for about sixty percent of program expenditures. These are sick, elderly people who face life-threatening, life-altering, or disabling illnesses such as cancer, stroke, heart disease, and dementia. Can we really ask these women and men to be "cost-conscious seniors" choosing "among competing insurance and delivery system options?" Is there any evidence that seniors (or their families) want to assume these burdens and risks? Are they well-equipped to perform these tasks well?

Ironically, the one proven way to reduce Medicare costs is precisely the approach Leavitt rejects: Using Medicare's bargaining power to restrain prices. Such market leverage--though sometimes clumsily or foolishly applied--will be increasingly essential. This is not "micromanagement." In many cases, it is a long-overdue response to the reality that Medicare frequently pays more than it should for drugs, medical equipment and supplies, and many other things. Such overpayments do not improve patient outcomes. They drive up costs for seniors and for everyone else.

Leavitt is correct that uniform reductions in market prices are less valuable and more harmful than more discriminating approaches. Medicare pays providers for improved patient outcomes rather than for a greater volume of poking, cutting, and prodding. Of course this requires some of the very "micromanagement" Leavitt doesn't like. That's why ACA provides new money for demonstration projects and for comparative effectiveness research.

Medical device manufacturers, pharmaceutical firms, and some surgical specialties don't like health reform, and they especially dislike these latter ventures. I take this as a positive sign.

Postscript: I added an explanation in the title. With so much material for irony these days, it seemed important to specify.

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