What’s Wrong with Republicans on Medicare

To demonstrate that most Republicans have no desire to reduce federal spending, one need look no further than a Politico story last Thursday. The article recounted how the pending tax bill could trigger automatic reductions in mandatory spending, including to Medicare, under the pay-as-you-go law. When presented with that scenario, Rep. Phil Roe (R-TN) responded thusly:

Medicare is underfunded as it is. If we have to change the PAYGO [pay-as-you-go] rules [that trigger the spending reductions], we’ll just change ‘em. At the end of the day, we—Republicans and Democrats—have to go home and face our constituents. I wouldn’t want to go home and face my constituents if I’d cut Medicare.

Over and above the obvious fact that Roe expressed less-than-zero interest in actually reducing federal spending, he also showed some tortured and erroneous logic in arriving at his position.

To put Medicare’s spending in another context: According to International Monetary Fund statistics, in 2016, the program spent more than the total economic output of all but 20 nations. That same list demonstrates that Medicare spent more than the entire economic output of New Zealand, Greece, and Portugal combined. Yet Roe considers the program “under-funded.”

But Medicare Is Going Insolvent, and Fast

As I noted last year, the Medicare trustees report issued in 2009, the year before Obamacare’s enactment, predicted the program’s Part A (Hospital Insurance) Trust Fund would become insolvent in 2017—this year. The following year, after Obamacare became law, the trustees postponed the insolvency date from this year to 2029.

But, as the Congressional Budget Office noted, Obamacare did not “enhance the ability of the government to pay for future Medicare benefits.” Put simply, because Obamacare’s re-directed Medicare savings to pay for new entitlements, the provisions improved Medicare’s solvency only on paper. Then-Health and Human Services secretary Kathleen Sebelius admitted as much when, asked in congressional testimony whether the Medicare provisions were being used “to save Medicare or…to fund [Obamacare],” she answered, “Both.”

Substantively, Obamacare’s fiscal schemes did not help Medicare’s solvency one whit. The program was scheduled to become functionally insolvent this year, and because Congress has enacted few meaningful reforms to the program in the time since, can be considered as such. However, because they improved the program’s solvency on paper, Obamacare’s budgetary gimmicks have allowed people like Roe to deny the problem exists, which will only worsen the scale of fiscal adjustment needed when Medicare finally faces its fiscal reckoning.

Reducing Spending Increases Is Not a ‘Cut’

As the New York Times has noted, Republicans argued vociferously—and correctly—earlier this year that slowing the growth of Medicaid spending in their “repeal-and-replace” bills did not represent a “cut” in that program. Yet Roe quickly resurrected the familiar (and incorrect) talking point about budget “cuts” when discussing Medicare.

Over the years, Republicans have spent far too much time demagoguing Obamacare for “cutting” Medicare. (As noted above, the problem with the law wasn’t that it reduced Medicare spending, it’s that it spent those Medicare savings to fund Obamacare, rather than shore up Medicare’s finances.) They now face many of the same opportunistic attacks from the Left regarding the entitlement reform proposals included in the “repeal-and-replace” bills. So why is Roe retreating into that same mindset that a decrease in a spending increase represents a “cut?”

Roe may not want to go back home and explain to his constituents why he reduced Medicare spending. But sooner or later, he and his fellow members of Congress will have to do just that. And the more he and his colleagues continue their pattern of obfuscation and denial through these kinds of ill-informed comments, the worse those spending reductions will end up being.

This post was originally published at The Federalist.

Medicare and Medicaid Turn 45

The Medicare and Medicaid programs turn 45 today; benefits for these entitlement programs started on July 1, 1966.  While the programs’ current structure may have been sufficient for a year when disposable diapers were invented and Star Trek first appeared on television, today’s deficit crisis shows how both entitlements need comprehensive reform to last through the 21st century:

  • At the time of its enactment in 1965, actuaries for the House Ways and Means Committee projected that in 1990, Medicare Part A would spend $9.1 billion on hospital services and related administration.  In reality, spending in 1990 totaled nearly $67 billion – more than seven times the original estimates.
  • Prior to its enactment, the Medicare Part B program for physician services was projected to be funded through a $3 monthly premium, supplemented by “federal appropriations of about $500 million a year from general tax revenues.”  In 2009, Medicare Part B relied upon $162.8 billion in federal general revenues – an increase of more than 4800 percent in inflation-adjusted spending.
  • According to the Medicare trustees report, the program is scheduled to run a $39 billion deficit this fiscal year, and is NEVER projected to achieve balance.  By comparison, the entire Greek government ran a deficit of only about $35 billion last year.
  • At a time when states face budget deficits totaling a collective $175 billion, Obamacare is imposing unfunded mandates on state Medicaid programs totaling at least $118 billion.
  • Table 3-1 of CBO’s long-term budget outlook confirms that from 1975-2007 and 1990-2007, excess cost growth in Medicare exceeded that of Medicaid and all other health spending (including from private sources), raising doubts about Medicare’s ability to function as a leader in controlling health care costs.
  • CBO also estimates that between now and 2035, 64% of the growth in entitlement spending, and 48% of the growth in health care entitlement spending, will be driven by demographic factors associated with the retirement of the Baby Boomers and general aging of the American population.  In other words, Medicare and Medicaid need fundamental reforms; even if health care costs were brought under control, entitlement programs face significant structural difficulties, as nearly half of the growth in entitlement spending over the next generation comes from demographics, NOT rising costs.
  • According to CBO’s alternative fiscal scenario – which presumes (among other things) that physicians will not receive a 30% reimbursement cut in January 2012 – Medicare alone is projected to nearly double over the next 25 years, from 3.7% of GDP to almost 7 percent by 2035.
  • Between now and 2035, CBO projects that federal spending on health care will total $41.3 trillion.  By comparison, according to the International Monetary Fund, the combined gross domestic product of the world’s top ten economies in 2010 was $41.4 trillion.  So in other words, over the next generation, the United States will spend on its health care entitlements about as much as all the goods and services that the United States, China, Japan, Germany, France, the United Kingdom, Brazil, Italy, Canada, and India combined produced last year.

All these facts point to one central conclusion:  Both Medicare and Medicaid are unsustainable in their current form.  Republicans have put forward solutions to address these concerns.  Where are the Democrat proposals?

Federal Health Care Spending Is a $425 TRILLION Problem

The release of CBO’s long-term budget outlook yesterday was accompanied by a supplemental series of spreadsheets that serve as the basis for the graphs in the report.  Among the interesting data points are estimates of total mandatory health care spending – including Medicare, Medicaid, SCHIP, and the insurance subsidies created in the health care law – under the alternative fiscal scenario.  This scenario assumes that Medicare physician payments are not reduced by nearly 30 percent next year under the sustainable growth rate mechanism, and that several savings provisions in the health care law that CBO believes will be “difficult to sustain for a long period” – such as the productivity adjustments for providers and IPAB spending reductions – are not fully implemented. (Unfortunately, CBO does NOT provide separate programmatic assumptions for Medicare and/or Medicaid spending under the alternative fiscal scenario, so it’s impossible to calculate these – or to calculate the long-term spending effects of the health care law in isolation from other provisions.)

The spending levels in the charts are expressed as a percentage of GDP.  However, CBO also includes yearly GDP estimates in calculating its long-range economic assumptions.  So it’s fairly simple to multiply estimated federal health care spending as a percentage of GDP by estimated GDP amounts in dollars and arrive at a dollar-figure estimate of federal health care spending for each year through 2085.

The results are below – and they’re shocking.  Between now and 2085, CBO projects that the federal government will spend $425,959,000,000,000 on health care programs.  That’s $425 TRILLION dollars.  And as CBO points out in its chart, those estimates are in today’s money.

Even in the shorter term, spending on health care entitlements will grow at astounding levels.  Between now and 2035, CBO projects that federal spending on health care will total $41.3 trillion.  By comparison, according to the International Monetary Fund, the combined gross domestic product of the world’s top ten economies in 2010 was $41.4 trillion.  So in other words, over the next generation, the United States will spend on its health care entitlements about as much as all the goods and services that the United States, China, Japan, Germany, France, the United Kingdom, Brazil, Italy, Canada, and India combined produced last year.

If ever any set of statistics could convince you that Washington doesn’t have a taxing problem, it has a spending problem, it’s this one.

 

Fiscal Year Medicare, Medicaid, CHIP, and Exchange Subsidies Real GDP (Fiscal Year, in Billions of 2011 dollars) Federal Health Spending (Billions of  2011 dollars)
       
2011 5.6 15,000 840
2012 5.4 15,500 837
2013 5.5 16,000 880
2014 5.8 16,500 957
2015 6.1 17,100 1,043
2016 6.3 17,700 1,115
2017 6.5 18,200 1,183
2018 6.6 18,600 1,228
2019 6.7 19,000 1,273
2020 6.9 19,500 1,346
2021 7.1 19,900 1,413
2022 7.4 20,400 1,510
2023 7.6 20,800 1,581
2024 7.8 21,200 1,654
2025 8.0 21,700 1,736
2026 8.3 22,100 1,834
2027 8.5 22,500 1,913
2028 8.7 23,000 2,001
2029 9.0 23,500 2,115
2030 9.2 24,000 2,208
2031 9.5 24,500 2,328
2032 9.7 25,000 2,425
2033 9.9 25,600 2,534
2034 10.1 26,100 2,636
2035 10.3 26,700 2,750
2036 10.6 27,300 2,894
2037 10.8 27,800 3,002
2038 11.0 28,400 3,124
2039 11.2 29,100 3,259
2040 11.4 29,700 3,386
2041 11.5 30,400 3,496
2042 11.7 31,100 3,639
2043 11.9 31,800 3,784
2044 12.1 32,500 3,933
2045 12.2 33,300 4,063
2046 12.4 34,000 4,216
2047 12.6 34,800 4,385
2048 12.7 35,500 4,509
2049 12.9 36,300 4,683
2050 13.0 37,100 4,823
2051 13.2 37,900 5,003
2052 13.4 38,700 5,186
2053 13.5 39,500 5,333
2054 13.7 40,400 5,535
2055 13.9 41,300 5,741
2056 14.0 42,200 5,908
2057 14.2 43,100 6,120
2058 14.4 44,000 6,336
2059 14.6 44,900 6,555
2060 14.8 45,900 6,793
2061 14.9 46,900 6,988
2062 15.1 48,000 7,248
2063 15.3 49,000 7,497
2064 15.5 50,100 7,766
2065 15.7 51,200 8,038
2066 15.9 52,300 8,316
2067 16.1 53,500 8,614
2068 16.3 54,700 8,916
2069 16.4 55,800 9,151
2070 16.6 57,100 9,479
2071 16.8 58,400 9,811
2072 17.0 59,700 10,149
2073 17.2 61,100 10,509
2074 17.4 62,500 10,875
2075 17.6 63,900 11,246
2076 17.8 65,400 11,641
2077 18.0 66,900 12,042
2078 18.1 68,300 12,362
2079 18.3 69,800 12,773
2080 18.5 71,300 13,191
2081 18.7 72,800 13,614
2082 18.8 74,400 13,987
2083 19.0 75,900 14,421
2084 19.2 77,600 14,899
2085 19.4 79,300 15,384

Did Democrats’ Health Law Violate the Fifth Commandment?

No, I’m not referring to the dictum to “Honor your father and your mother” and its applicability to the Medicare portions of the law, which is an entirely different discussion.  I write instead about the “Ten Commandments for Fiscal Adjustment in Advanced Economies” that the International Monetary Fund released last week, ahead of the G-20 summit.  That document’s fifth point specifically called on developed countries to pass “early health and pension reforms, as current trends are unsustainable.”

How well did Democrats’ health “reform” law meet this standard, according to the non-partisan Congressional Budget Office?  CBO Director Elmendorf today gave a lukewarm assessment at best, noting that if the law is fully implemented, it will make “steps in the direction of a sustainable fiscal policy.  But they are small steps relative to the journey that will be needed for fiscally sustainability.”

Most critically, even this rather tepid analysis presumes that all the tax increases and savings measures in the health care law are fully implemented – an assumption about which CBO remains highly skeptical.  While today’s CBO report included one current-law baseline estimate that presumes the law is fully implemented, it also included an alternative baseline that presumes many of the largest and most controversial savings proposals will never be allowed to take effect by Congress.  The alternative fiscal scenario is not an unusual phenomenon – at the Fiscal Commission meeting this morning, Budget Committee Chairman Conrad called it a useful tool, and some experts view it as giving a more accurate and realistic picture of the country’s long-term fiscal picture.  What is striking though is the way in which CBO, in arriving at its alternative scenario, assumed that most of the law’s major savings provisions will never take full effect – this only three months after the law was first enacted.

So in sum: While the IMF called current trends on health spending “unsustainable,” the Congressional Budget Office released a report highlighting several “Questions About Sustainability” for a law enacted mere months ago, and recently asserted that even if the law is fully and successfully implemented, “putting the federal budget on a sustainable path would almost certainly require a significant reduction in the growth of federal health spending relative to current law (including this year’s health legislation).”  Sounds like some Democratic fiscal hawks may need a trip to the IMF confessional.

One final word on health care and the budget: The Center for American Progress released a report today claiming that according to CBO, the health care law “is fully funded, strengthens the Medicare trust fund, and reduces the federal deficit.”  That claim is demonstrably false.  In January CBO stated that “the majority of the [Medicare] trust fund savings under [the health law] would be used to pay for other spending and therefore would not enhance the ability of the government to pay future benefits.”  CBO followed up with a March letter to Congressman Ryan, in which it tallied the budgetary effects of keeping the Medicare Hospital Insurance savings in the Medicare HI trust fund: “the legislation’s effects on the rest of the budget—other than the cash flows of the HI trust fund—would amount to a net increase in federal deficits of $260 billion over” 10 years.  In plain English, the same money can’t be used BOTH to “save” Medicare and to reduce the deficit – if the Medicare savings proposals were dedicated solely toward Medicare, the deficit would soar – so CAP’s claim is clearly false.  Moreover, with respect to the claim that the law is “fully funded,” CBO released a letter last week claiming the high-risk pool program is NOT fully funded, and that as many as 500,000 individuals with pre-existing conditions could lose out on coverage as a result – so that CAP claim needs fact-checking as well.