Medicare Cuts Are a Well-Priced Lunch

On MSNBC’s "Up With Chris Hayes" panel this weekend, I was surprised by how much resistance I got to my contention that Mitt Romney has gotten to President Barack Obama’s left on the issue of Medicare for people born in or before 1957.

Romney has pledged not to reform the Medicare program until 2022 (and then only for new beneficiaries) and says that before then, he will restore $716 billion in scheduled cuts to Medicare, enacted as part of the Patient Protection and Affordable Care Act. It’s easy to see why this message appeals to seniors.

My co-panelists on MSNBC responded that Obama's program cuts Medicare spending, not Medicare benefits, and that Medicare providers will bear the brunt of the cuts. This has also been the White House’s talking point, with Obama spokesperson Lis Smith insisting that PPACA's Medicare spending cuts "do not cut a single guaranteed Medicare benefit."

Unfortunately, it’s not that simple. Self-interested seniors have good reason to want to see the Medicare cuts restored, even though doing so would be bad public policy. In other words, Medicare cuts are a well-priced lunch, but they're not a free lunch.

The subsidies for private Medicare Advantage plans, which were eliminated in PPACA, have financed benefits for the program's participants. Forcing Medicare Advantage to compete on a level playing field with traditional Medicare means less generous benefits for some seniors. And reductions in reimbursement rates to doctors and hospitals don’t only affect doctors and hospitals -- when some drop out of the Medicare program in reaction to these cuts, some seniors will have fewer options for care as a result.

PPACA also has some upsides for seniors. It closes the “donut hole” in the Medicare prescription drug benefit, and it includes a guarantee of a free annual wellness visit. It's true that in some cases providers will just eat reimbursement rate cuts, particularly in specialties where nearly all patients are on Medicare. But it’s perfectly reasonable for seniors to look at a 10 percent reduction in Medicare spending over 10 years and conclude that it runs against their interests on the whole.

I say this in part because I've been hearing it from my mother, whose primary care doctor recently stopped taking Medicare. The explanation he gave to his patients is that PPACA’s new requirement for no-copayment annual wellness visits is too large a burden for his practice. "Wellness visits" include some, but not all, of the components of an annual physical. He could start doing 15-minute wellness visits, but he’d rather continue giving long, expensive physicals, and he has patients who are willing to pay for them or who have private insurers willing to do so.

This is a great example of why the Medicare cuts are not a free lunch but are still good policy. There are a wide variety of perfectly suitable doctors in my mother's area who take Medicare and whom she could go to instead. Making sure all the most in-demand doctors take Medicare is a lower policy priority than making sure everybody gets some level of health insurance.

This is part of why it was such a strategic error to delay PPACA’s implementation for four years after enactment. The best defense of the Medicare cuts is that they help pay for a benefit that is more valuable -- but that’s not a defense the president is in a strong position to offer.

Note: A previous version of this post said that PPACA added a no-copayment annual physical to the Medicare benefit. The addition is actually an annual "wellness visit" which is not a physical exam.

(Josh Barro is lead writer for the Ticker. E-mail him and follow him on Twitter.)

Read more breaking commentary from Bloomberg View at the Ticker.

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