- - Wednesday, September 26, 2012

On the campaign trail, President Obama and the Democrats continue to insist that the administration’s Affordable Care Act (the ACA, or Obamacare) does not hurt Medicare beneficiaries, rebutting the Republican charge that the ACA slashes $716 billion from the program. But as a new working paper from American Action Forum scholars Robert Book and Michael Ramlet demonstrates, the cuts are real and significant.

This study is based on a July report from the nonpartisan Congressional Budget Office (CBO). It shows cuts apportioned to the states and counties based on current and projected shares of Medicare spending and Medicare Advantage enrollment. The ACA’s cuts will fall mostly on payment rates for Medicare fee-for-service providers ($415 billion), payments for Medicare Advantage plans ($156 billion) and hospital payments for treating low-income and uninsured Americans ($31 billion). A bundle of other ACA provisions cuts Medicare spending by an additional $114 billion. Add it up, and the ACA cuts nearly three-quarters of $1 trillion from Medicare between 2013 and 2022.

Mr. Book and Mr. Ramlet show that all 50 states will experience Medicare cuts, with 18 states enduring cuts of at least $10 billion; eight will feel cuts of at least $20 billion, including two critical swing states: Michigan and Ohio. California tops the list with more than $60 billion in Medicare reductions, followed by Florida ($44 billion), Texas ($43 billion), New York ($39 billion) and Pennsylvania ($28 billion).

Both parties like to play the “Mediscare” card, so the question is not whether we need to slow the rate of Medicare spending (we do), but whether the cuts are structured in a way that makes Medicare sustainable over the long run.

Here is where Obamacare falls far short. Democrats claim that they haven’t raided Medicare, because the ACA doesn’t cut benefits. This is technically true but misses the larger point. If cuts to providers fall below the cost of actually providing those services to Medicare patients, providers will limit or stop offering those services to patients. Put another way, seniors will be offered fewer benefits.

For instance, even at current Medicare rates, the Mayo Clinic in Arizona no longer accepts Medicare coverage. A February survey of 100 primary care physicians in Colorado found that nearly two-thirds either limited the number of new patients they would see or refused new Medicare patients altogether. Why? Because Medicare paid less than private insurance, often paid late and could require a blizzard of paperwork from physician offices. Obamacare’s Medicare cuts exacerbate this issue.

Mr. Obama certainly understands the concept. In June 2010, discussing looming cuts for physicians under Medicare’s Sustainable Growth Rate (SGR), he said that Congress’ “intent was to slow the growth of Medicare costs, but the result was a formula that has proposed cutting payments for America’s doctors year after year after year. These are cuts that would not only jeopardize our physicians’ pay, but our seniors’ health care.”

This begs the question: Why would the president propose the Medicare cuts he did in his health care law?

By way of tricky government accounting methods, Democrats can technically say that the Medicare cuts extend the life of the Medicare trust fund, but in reality, it’s just an IOU from the U.S. Treasury. That money has already been spent on the ACA’s subsidies for buying private insurance on state exchanges.

In fact, based on the Center for Medicare and Medicaid Services’ latest projections for National Health Expenditures, the total bill for the state exchanges (including administration and grants to states) will exceed $800 billion by 2021. In short, the money is already gone, and will not extend Medicare’s solvency.

If you want to argue that Obamacare extends the life of Medicare, you have to acknowledge that it only does so by massively expanding the deficit — since the “savings” are spent on expanding insurance coverage.

The Romney-Ryan plan would restore that funding to Medicare by repealing the ACA, and then implement a premium-support plan in Medicare that would allow seniors to choose between private insurance coverage options and traditional Medicare fee-for-service. Plans would compete to offer high-quality service to providers, keeping costs down rather than passing them along to seniors.

Plans could build robust preferred-provider networks, engage in selective contracting or other strategies that work in the private sector to control costs and improve quality. Overall spending in the program, for both Medicare and private insurance, would rise at the same rate — inducing even more competition. With Medicare and private insurers competing — and, more importantly, providers and hospitals competing for inclusion in new Medicare networks based on quality and price — we can expect costs to come down under the Republican plan.

Think of it as getting Medicare reform right for the first time rather than — as the ACA does — robbing Peter to pay Paul.

Paul Howard is the director and senior fellow at the Manhattan Institute’s Center for Medical Progress and a member of Mitt Romney’s Health Care Advisory Group. Yevgeniy Feyman is a research associate with the Manhattan Institute for Policy Research.

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