Repealing “Son of Obamacare”

The election of Donald Trump brings conservatives an opportunity to repeal a misguided piece of health care legislation that cost hundreds of billions of dollars, will blow a major whole in our deficit, has led to thousands of pages of regulations, and will further undermine the integrity of the doctor-patient relationship.

Think I’m talking about Obamacare?

I am — but I’m not just talking about Obamacare.

I’m also talking about the Medicare and CHIP Reauthorization Act (MACRA), which passed last year (with a surprising level of Republican support) and contains many of the same flaws as Obamacare itself.

Just as Republicans are preparing legislation to repeal and replace Obamacare, they also need to figure out how to undo MACRA.

Last month, the Obama administration released a 2,398-page final regulation — let me say that again: a 2,398-page regulation — implementing MACRA’s physician reimbursement regime.

In the new Congress, Republicans can and should use the Congressional Review Act to pass a resolution of disapproval revoking this massive new regulation. They can then set about making the changes to Medicare that both Paul Ryan and Donald Trump have discussed: getting government out of the business of 1) fixing prices and 2) micro-managing the practice of medicine.


Since the administration released its physician-payment regulations — nearly as long as Obamacare itself – some commentary has emphasized (rightly) the burdensome nature of the new federal regulations and mandates.

But the more fundamental point, rarely made, is that we need more than mere tweaks to free doctors from an ever-tightening grip exercised by federal overseers. After more than a half century of failed attempts at government price-setting and micro-management of medical practice, it’s time to get Washington out of the business of playing “Dr. Sam” once and for all.

In fact, even liberals tend to acknowledge this occasionally. In a May 2011 C-SPAN interview, Noam Levey of the Los Angeles Times asked then-administrator of the Centers for Medicare and Medicaid Services Donald Berwick why he thought the federal government could use Medicare as it exists to reform the health-care system:

In nearly half a century of federal-government oversight, the federal government hasn’t succeeded in two really important things: Number one, Medicare costs are still growing substantially more quickly than the economy; and number two, that fragmented [health care] system . . . has persisted in Medicare for 46 years now. . . . Why should the public, when it hears you, when it hears the President say, “Don’t worry, this time we’re going to make it better, we’re going to give you a more efficient, higher-quality health care system,” why should they believe that the federal government can do now what it essentially hasn’t really been able to do for close to half a century? [Emphasis added] 

Dr. Berwick didn’t really answer the question: He claimed that fragmented care issues “are not Medicare problems — they’re health system problems.” But in reality, liberal organizations like the Commonwealth Fund often argue Medicare can be leveraged as a model to reform the entire health care system — and that is exactly what MACRA, in defiance of historical precedent, tries to do.

When a 2012 Congressional Budget Office report examined the history of various Medicare payment demonstrations, it concluded that most had not saved money. A seminal study undertaken by MIT’s Amy Finkelstein concluded that the introduction of Medicare, and specifically its method of third-party payment, was one of the primary drivers of the growth in health-care spending during the second half of the 20th century.

After five decades of failed government control and rising costs driven by the existing Medicare program, the solution lies not in more tweaks and changes to the same program.

The answer lies in replacing that program with a system of premium support that gets the federal government out of the price-fixing business entirely.

The notion that the federal government can know the right price for inhalation therapy in Birmingham or the appropriate reimbursement for a wart removal in Boise is a fundamentally flawed and arrogant premise — one that conservatives should whole-heartedly reject.

Unfortunately, most critics of MACRA have not fully grasped this. A law that prompts the federal bureaucracy to issue a sprawling regulation of nearly 2,400 pages cannot on any level be considered conceptually sound.

Believing otherwise echoes Margaret Thatcher’s famous maxim about consensus politicians and conviction politicians: Some analysts, seeking a consensus among their fellow technocrats, push for changes to make the 2,400-page rule more palatable. But our convictions should have us automatically reject any regulation with this level of micro-management and government-enforced minutiae.


It bears worth repeating that, in addition to perpetuating the statist nature of Medicare, MACRA raised the deficit by over $100 billion in its first ten years — and more thereafter — while not fundamentally solving the long-term problem of Medicare physician-payment levels.

More than a decade ago, after President Bush and a Republican Congress passed the costly Medicare Modernization Act (MMA), creating the Part D prescription-drug entitlement, conservatives argued even after the law’s passage that the new entitlement should not take effect. If the MMA was “no Medicare reform” for including only a premium-support demonstration project, conservatives should likewise reject MACRA, which includes nothing – not even a demonstration project — to advance the premium-support reform Medicare truly needs.

Any efforts focused on building a slightly better government health-care mousetrap distract from the ultimate goal: removing the mousetrap entirely. In his 1964 speech A Time for Choosing, Reagan rejected the idea “that a little intellectual elite in a far distant capital can plan our lives for us better than we can plan them ourselves” — and Republicans should do the same today.

In the context of health care, this means not debating the details of MACRA but replacing it, sending power back to where it belongs — with the people themselves.

Last week’s election results give the new Congress an opportunity to do just that, by disapproving the MACRA rule and moving to enact comprehensive Medicare reform in its place. After more than five decades of the same statist health care policies, it’s finally time for a new approach. Here’s hoping Congress agrees.

This post was originally published at National Review.

The Case for Testing Medicare Premium Support

The House-Senate budget conference report released last Wednesday included several interesting nuggets. Among the most surprising was the lack of explicit language endorsing the concept of premium support reforms to Medicare. Conservatives have voiced support for premium support for years—most notably in the entitlement reform proposals from then-House Budget Committee Chairman Paul Ryan—but legislative progress has been limited.

More than a decade ago, Section 241 of the Medicare Modernization Act of 2003 established a comparative cost-adjustment program for Medicare to allow privately run Medicare Advantage plans to compete directly against traditional government-run Medicare. The demonstration allowed Part B premiums for seniors enrolled in traditional Medicare to vary: If private Medicare Advantage plans bid below the cost of traditional Medicare in an area, Part B premiums would rise; but if traditional Medicare could provide care more efficiently than private Medicare Advantage plans, Part B premiums would fall. The statute limited the variation to 5% of the Part B premium, and the demonstration to no more than six metropolitan regions. It was designed to encourage seniors to choose the most efficient coverage, regardless of whether that option was private or government-run—generating premium savings for seniors and budgetary savings to the federal government.

Congress intended to start the demonstration in January 2010, with the experiment running through December of 2015. But the Obama administration never attempted to implement the program, and Section 1102(f) of the reconciliation bill used to pass Obamacare in March 2010 repealed the program.

While the recent “doc fix” legislation included an expansion of Medicare means-testing and other modest reforms, there were no provisions regarding premium support. A demonstration such as that passed in 2003—but never implemented—might point the way toward greater long-term structural impact on Medicare, even if it generated paltry short-term savings. There is policy and political value to testing its potential for success—and dampening hyperbolic rhetoric.

With premium support something of a political lightning rod, the lack of legislative proposals to test it—or otherwise—suggests an unwillingness to engage. Those who voted for past budget plans that included it are likely to take flak regardless; there are benefits to taking steps to make the policy case.

This post was originally published at the Wall Street Journal Think Tank blog.

Donald Berwick Rations the Facts With His Eyes Open

Former Medicare chief Dr. Donald Berwick published an op-ed in today’s Boston Globe in which he endorses Professor Elizabeth Warren for her support of Obamacare.  Unfortunately, however, the column reveals that Dr. Berwick must not have learned much about the Medicare program during his time at CMS, given many of his statements:

“Obamacare reduce costs…”  That’s not what Medicare’s own actuary said.  Earlier this year, the actuary published an analysis indicating the law would raise costs by more than $478 billion.  Last year, the actuary testified before Congress, calling “False” the Administration’s stated goal of reducing health care costs.

“It targets waste, fraud, and abuse, reduces unnecessary subsidies to insurance companies…”  Again, that’s not what Medicare’s own actuary said.  He has concluded that over the long-term, up to 40 percent of providers would become unprofitable due to Obamacare, and could “have to withdraw from providing services to Medicare beneficiaries.”  Just this week, an Alabama hospital took a different course – it decided to shut down entirely, due to the impact of Obamacare on its business model.

“President Obama’s health reforms do not cut any guaranteed Medicare benefits…”  This statement is manifestly FALSE, as we have previously demonstrated.  Obamacare cut benefits for wealthy seniors, by forcing them to pay more for their Medicare coverage.  And President Obama’s budget proposed even further benefit cuts – new means-testing, additional co-payments, and higher premiums.  In many cases, these changes are actually good policy, but they’re still cuts to “guaranteed benefits” – and no one should be dishonest enough to claim that they aren’t.

“Thanks to Obamacare, seniors can now get a free annual wellness visit…”  Also incorrect.  These services may be delivered without any out-of-pocket cost-sharing, but they are NOT “free” – someone ends up paying for them.  In fact, all seniors end up paying, as do all Americans – through higher taxpayer spending on Medicare, and higher Part B premiums for seniors.

“Medicare and Medicaid both face challenges today, but not because of Obamacare.  The challenges exist throughout the health care system, mainly in the form of rising costs.”  The implication is that Medicare isn’t the problem – that health costs as a whole are a problem.  But the fact is that Medicare – and particularly its focus on fee-for-service medicine – has been one of the driving elements of rising costs and inefficiency in our health care system.  The non-partisan Congressional Budget Office, in a January report analyzing dozens of Medicare demonstration programs, said these programs did not contain health costs, precisely because of the flawed incentives included in fee-for-service medicine: “Demonstrations aimed at reducing spending and increasing quality of care face significant challenges in overcoming the incentives inherent in Medicare’s fee-for-service payment system, which rewards providers for delivering more care.”  In other words, Medicare isn’t the solution to health care costs – it’s the problem.

Dr. Berwick’s tenure at CMS was cut short due to his many controversial remarks, most notably his (in)famous interview in which he claimed that “The decision is not whether or not we will ration care – the decision is whether we will ration with our eyes open.”  Given his economies with accuracy in the op-ed, many may wonder if Dr. Berwick has also decided to ration the true facts about Obamacare with his eyes open.

A Fanciful, But Inaccurate, Premium Support Study

The Kaiser Family Foundation released a study today regarding premium support proposals, which Democrats have used to attack Medicare reform.  However, the study is an academic exercise that, by the authors’ own admission, bears little relation to reality.  First and foremost, the study assumes full implementation of premium support in 2010.  This assumption is particularly problematic, given the many changes that have taken place in Medicare Advantage since then:

In other words, by using a 2010 implementation date, the Kaiser study ignores entirely the impact of the biggest changes to both Medicare and Medicare Advantage since the programs were created.  Moreover, the study assumes a “Big Bang” model, whereby all the changes to Medicare would take place at once – even though it admits that most proposals being discussed “would gradually phase-in a premium support system in five to ten years,” allowing changes to be implemented in a way that prevents drastic adjustments.

Three other important things you need to know about the Kaiser study:

  1. The study does not do a good job delineating two separate and distinct phenomena: costs due to disparities between traditional Medicare and Medicare Advantage, and costs due to disparities within traditional Medicare itself.  To use one common example, traditional Medicare’s spending is far greater in metropolitan Miami than in many areas in the upper Midwest (for instance, Wisconsin).  Yet under current law, all enrollees in traditional Medicare pay the same Part B premium nationwide – meaning that right now, seniors in Wisconsin pay higher Part B premiums that subsidize higher levels of spending in Miami.  The premium support proposal modeled by Kaiser would eliminate this disparity – meaning that under the study, premiums in traditional Medicare would rise substantially in Miami, to reflect that area’s much higher spending.  Critics would argue these higher premiums demonstrate the flaws of the premium support model.  But in reality, that’s not an argument against premium support – that’s an argument against the status quo in traditional Medicare, under which high-cost areas have had their spending subsidized by low-cost regions for far too long.
  2. The study does not fully model the ability of plan switching to reduce costs.  The headline figure about the number of individuals who would pay more to maintain their current coverage presumes that beneficiaries would not switch plans at all – not a realistic assumption under most scenarios.  And the study also assumes that low-income individuals would not automatically be assigned to a low-cost plan – current practice in Medicare Part D.  In short, the Kaiser study under-estimates both the impact that beneficiary choices and structural design could be used to facilitate enrollment in lower-cost premium support plans.
  3. At no point does the study even attempt to quantify potential budgetary savings from premium support.  The study goes to great lengths to outline the higher costs, but doesn’t make any estimate about the savings to the federal government from such a reform – or how it would improve Medicare’s long-term solvency.  In other words, the study focuses solely on pain to beneficiaries – without examining the gains to Medicare’s sustainability.

The Obama campaign’s response to the study – claiming that seniors “would have to give up their doctors or pay extra to maintain access to their choices” – is particularly rich.  Mind you, this claim comes from an Administration that will force millions of seniors out of their Medicare Advantage plans – not to save Medicare, but to fund Obamacare instead.  It’s yet another example of why Medicare needs real reform – and why this Administration is both unwilling and unable to deliver on it.

Fact Check: Medicare Advantage

Vice President Biden just claimed that enrollment in Medicare Advantage is increasing.  But as we noted previously, that’s just because the Administration decided to create a dubious “demonstration project” to delay the impact of Obamacare’s cuts until after the election.  The Medicare actuary still believes enrollment in Medicare Advantage will decline by millions in the years ahead.  Just as important, printing money to temporarily undo Obamacare’s cuts for political reasons isn’t responsible – and it’s not health “reform.”

More Reasons Why Obamacare Is the Wrong Approach to Reducing Costs

The Wall Street Journal reports this morning on yet another study finding that reforms to change the delivery system of health care have failed to produce their intended results:

A high-profile Medicare policy that sought to reduce certain hospital-acquired infections by cutting payments tied to treating them turned out to have no impact, according to a new study in the New England Journal of Medicine.  The study…found “no evidence” that the shift had any measurable impact on the infections, which were already decreasing before the change went into effect.  The study follows other research that has cast doubt on the effectiveness of some efforts to tie reimbursement to quality-improvement efforts in health care, an approach that is being considerably ramped up under the federal health overhaul.

While this particular initiative pre-dates Obamacare, the health law builds on the same concept – that federal bureaucrats can reduce Medicare costs by engaging in various tweaks to the health care delivery system.  Unfortunately, however, several other recent studies have come to the same conclusions as this morning’s report – that these efforts to “build a better mousetrap” in Medicare will not succeed in reducing costs:

  • A paper in Health Affairs (subscription required) released last week found that even “aggressive” improvements in performance measures by accountable care organizations caring for diabetic patients would result in minimal cost savings – and “after the costs of performance improvement, such as additional tests or visits, are accounted for,” those minimal cost savings could become cost increases.  In other words, an initiative the Administration has trumpeted as “bringing real change to a health care system that has cost us too much” won’t have much impact on reducing costs.
  • A recent analysis of North Carolina’s patient-centered medical home initiative found the program yielded no budgetary savings, contrary to expectations.
  • More broadly, the Congressional Budget Office noted earlier this year in a major report that most Medicare demonstration programs over the past several decades have NOT saved money – re-iterating the above findings, and again suggesting Obamacare’s efforts to control costs by micro-managing Medicare in a slightly different fashion won’t work.

In an article this morning, the New York Times notes that “in the 2008 campaign, Mr. Obama often told voters that he would lower premiums by $2,500 a year per family ‘by the end of my first term as president.’  It has not happened…”  That fact should be glaringly obvious to anyone who has paid a health insurance premium in recent months.  And the events of the past few weeks demonstrate both why Obamacare has failed to lower costs thus far, and is also unlikely to lower costs in the future.

Kathleen Sebelius Focuses on Saving One Job: Hers

The Examiner reported on Friday that HHS Secretary Sebelius “will soon be back to doing what she does best – campaigning for President Obama.”  The Secretary was scheduled to appear at several events over the weekend in New Hampshire.  This development shouldn’t surprise most observers, for playing politics has been a major part of Secretary Sebelius’ time in office:

Meanwhile, while the Secretary keeps playing politics, the actual work of governing goes unaddressed:

  • The Secretary admitted in April that the Administration didn’t have a backup plan in place should the Supreme Court strike down Obamacare – even though it would “probably” have been wise for the Department to have one;
  • Perhaps because the Secretary was derelict in her duties to prepare for the consequences of the Court’s decision, the nation’s governors have been waiting months for official guidance from HHS on how to interpret the ruling – to say nothing of the myriad other implementation issues still bogged down within HHS; and
  • As we pointed out last week, HHS has allowed up to $11 billion in abusive and potentially fraudulent increases in Medicare payments to go unquestioned for years.

Given this abysmal track record, some might think Secretary Sebelius should spend less time trying to save her job and more time trying to do it.

“Medicare Quantitative Easing:” Sebelius Channels Ben Bernanke

The Administration announced today its projection that Medicare Advantage enrollment will rise next year.  What it did NOT mention in its announcement is why the program’s enrollment may climb: Because of a Medicare Advantage demonstration program costing more than $8 billion, and implemented solely by executive fiat, that looks suspiciously like an attempt to avoid the effects of Obamacare’s $300 billion in Medicare Advantage cuts prior to the 2012 election.  In other words, even as the Administration implements the cuts with one hand, its demonstration program – which amounts to a three-year Obamacare waiver for seniors – temporarily undoes the cuts with the other, because Secretary Sebelius has decided to spend an additional $8 billion purely on her say-so.

This attempt by the Administration to essentially print money so its Medicare Advantage problem goes away before the 2012 election has not escaped criticism.  Both the Medicare Payment Advisory Commission and the Government Accountability Office have raised serious questions about the demonstration program.  One report by GAO suggested the program may exceed the Administration’s statutory authority.  The Associated Press also reported on the Medicare Advantage demonstration last year, noting that the program “could head off service cuts that would have been a [political] headache for Obama and Democrats in next year’s elections.”  Even a former Democrat staffer who worked in the Clinton Administration admitted that the effort amounted to a political stunt: “It’s fair to say that [Medicare] could not tolerate dislocation, given the political climate.”

Some conservatives have criticized Chairman Bernanke’s latest efforts at quantitative easing, noting that the Federal Reserve’s initiatives to print money could prove difficult to unwind in the longer term and lead to inflation.  Likewise, Secretary Sebelius’ efforts to print $8 billion to solve a political problem could prove the tip of the iceberg in its long-term fiscal effects.  The Administration assumes all the Medicare spending reductions will go into effect, but the Medicare Advantage demonstration program illustrates how the Obama White House has already reversed one of the major spending reductions – the Medicare Advantage cuts – to fend off political dissent during the President’s re-election campaign.  So either seniors will lose access to Medicare Advantage plans, the Obama Administration will continue to undo the cuts – thus causing the deficit to increase – or some combination of the two will take place.  Either way, Secretary Sebelius’ “political quantitative easing” when it comes to Medicare Advantage is not likely to end well for seniors, or for taxpayers.

How the Status Quo Leaves Medicare Ripe for Abuse

Yesterday, the Washington Post ran its second major expose in as many months about abuses in the Medicare program.  Last month’s article was about the way drug companies abused reimbursement for anti-anemia drugs; yesterday’s piece focused on providers “up-coding” – that is, claiming to see patients for longer and more intense visits, so as to claim higher reimbursement from Medicare.  The article notes the practice has become widespread, and costs Medicare billions annually:

Thousands of doctors and other medical professionals have billed Medicare for increasingly complicated and costly treatments over the past decade, adding $11 billion or more to their fees — and signaling a possible rise in medical billing abuse, according to an investigation by the Center for Public Integrity.

Between 2001 and 2010, doctors increasingly moved to higher-paying codes for billing Medicare for office visits while cutting back on lower-paying ones, according to a year-long examination of about 362 million claims.  In 2001, the two highest codes were listed on about 25 percent of the doctor-visit claims; in 2010, they were on 40 percent.  Similarly, hospitals sharply stepped up the use of the highest codes for emergency room visits while cutting back on the lowest codes….

Medicare billing data do not indicate that patients are getting more infirm, as their reasons for visiting their doctors were essentially unchanged over time. And annual surveys by the federal Centers for Disease Control and Prevention have found little increase in the amount of time physicians spend with patients.  That suggests that at least part of the shift to higher codes is due to “upcoding” — also known as “code creep” — a form of bill-padding in which doctors and others bill Medicare for more expensive services than were actually delivered, according to health experts and the data analysis by the center.

Because physicians and hospitals are paid by Medicare in a fee-for-service format according to the services they perform, many have discovered that they can get paid more by billing for more, and/or more intense, procedures and services.  Ironically, the Post article notes that “the aggressive push to electronic medical records” – which Obama Administration officials claimed would lower health costs – “is likely fueling the trend toward higher codes” and greater Medicare spending.

What does Obamacare do to change fee-for-service medicine?  The answer ranges from “precious little” to “not enough.”  The law does include various demonstration programs designed to improve coordination of care, and shift emphasis back towards primary care physicians.  But the non-partisan Congressional Budget Office, in a January report analyzing dozens of Medicare demonstration programs over decades, said these programs did not contain health costs – because of the flawed and perverse incentives included in fee-for-service medicine:

The evaluations show that most programs have not reduced Medicare spending….Demonstrations aimed at reducing spending and increasing quality of care face significant challenges in overcoming the incentives inherent in Medicare’s fee-for-service payment system, which rewards providers for delivering more care

Ironically, Medicare premium support could encourage a movement away from fee-for-service medicine – by offering an avenue for providers and insurers to come up with new and innovative payment methods that focus on value and quality rather than performing services.  But President Obama and liberal Democrats have decided to oppose these reforms – which means that, under President Obama, we’re likely to see even more stories about how Medicare providers are manipulating and abusing the reimbursement system to the tune of billions of dollars.

The Wrong Philosophy for Reducing Health Care Costs

In his weekly Bloomberg column today, former Obama Administration budget director Peter Orszag once again attempts to defend Obamacare’s Independent Payment Advisory Board (IPAB), the group of 15 unelected bureaucrats who will be empowered to make binding rulings on how to reduce Medicare spending.  His arguments are based on two premises – each of which contains flaws.  The first premise is that providers, not patients, should affect most health care spending:

Focusing on providers is key because health-care expenses are so concentrated: High-cost cases account for the vast majority of the total.  In those cases, the care provided is, as it should be, mainly the services and tests recommended by the provider.  So if you do not influence provider recommendations in those cases, you cannot do all that much to improve the system.

This premise is valid – to a point.  Obviously, heart attack patients rushed to the emergency room will have little substantive opportunity to influence their health care spending decisions.  But the statement lands on shakier ground in other cases; Orszag’s statement that care “should be” directed by the provider also implies that, for instance, knee replacement patients will not, and should not, be able to influence their course of treatment.  In some cases, our health system currently lacks the proper tools to allow such patients to make fully informed choices – but enhanced price and quality transparency data can remedy this defect.

Orszag makes an even less compelling case when he argues that only Medicare can influence provider behavior:  “For better or worse, only Medicare is large enough to lead the health-care system toward a new structure of payment for providers.”  The problem with this argument is that Orszag and his fellow liberals only want to follow the logic one way.  Because if liberals want to argue that only Medicare has the market clout to change the health care system, that also means Medicare’s size was large enough to cause the system’s current problems.  And, nearly 50 years after Medicare’s creation, liberals haven’t explained how “This Time Is Different” – how a Medicare system can help solve a problem of exploding health costs that it helped to create.  In fact, the Congressional Budget Office noted earlier this year that most Medicare demonstration programs over the past several decades have NOT saved money – suggesting Obamacare’s efforts to control costs by micro-managing Medicare in  different fashion won’t work either.

The bottom line is that the philosophy Orszag approvingly recommends in which “direct modification of the behaviors of providers (versus consumers or payers)” by a board of government bureaucrats isn’t likely to be successful, in two respects.  First, as noted above, CBO has taken a dim view towards the notion that better bureaucratic tinkering will change the dire direction of health spending, and the Medicare program.  Second, and more fundamentally, the American people won’t take kindly to the idea of government bureaucrats engaging in “direct modification” of providers – while ignoring patients entirely.  That smacks of everything Democrats said Obamacare was not – namely, a government takeover of health care.  And it might explain why President Obama, despite blowing full speed ahead on virtually every other aspect of Obamacare implementation, has yet to appoint a single individual to IPAB – because he doesn’t want to reveal the board’s true design until after the November election.