Oct. 19 (Bloomberg) -- President Barack Obama argues that Republican Mitt Romney’s tax-cut proposals don’t add up, saying they rely on unproven assumptions to show they wouldn’t add to the federal deficit.
A similar complaint could be made against Obama on Medicare, the federal health-insurance plan for the elderly and disabled, which he has said is a key driver of the deficit.
The president’s approach to Medicare cost containment, embodied in his new health-care law and budget proposals, relies on experimental measures that don’t have a track record. Among the issues Obama doesn’t directly address is the share of health-care outlays consumed by beneficiaries in their final year of life -- more than 25 percent of Medicare spending.
“There’s a whole lot of uncertainty about this stuff,” said Robert Reischauer, a Medicare trustee and former director of the Congressional Budget Office. “Would I be surprised if things turn out to be 10, 15 percent better than projected? No I wouldn’t be. I wouldn’t be either if things turn out to be 10, 15 percent worse than expected.”
Obama’s backup plan, an independent board empowered to reduce Medicare payments to health-care providers if savings fall short, also could be stymied. Congress can override its decisions by a three-fifths majority or Senate Republicans might filibuster the panel’s appointments. The board isn’t permitted to reduce coverage for Medicare beneficiaries or raise the Medicare tax that workers pay on their wages.
Obama and Republican nominee Romney are both ducking unpopular choices on the way health care is provided, said Bob Bixby, executive director of the Concord Coalition, an Arlington, Virginia-based group that is an advocate for action to lower federal deficits.
“Are we overcompensating physicians? Are we over-treating patients? Is there too much intensity of service or are end-of-life services too high?” Bixby cited as examples.
Even as several studies show that more than a quarter of Medicare spending goes to care in the last year of life, resistance to curbing those costs is strong. A proposal to pay for counseling on end-of-life medical decisions such as “living wills” was dropped from Obama’s health-care legislation after a political backlash, with former Republican vice presidential candidate Sarah Palin condemning the idea as a “death panel.”
Medicare, created in 1965 as part of President Lyndon Johnson’s “Great Society,” provided health insurance to 49 million elderly and disabled Americans in 2011, according to the U.S. Centers for Medicare and Medicaid Services. The $483 billion in spending for the program last year accounted for 13.4 percent of the federal budget, according to the Congressional Budget Office.
A budget plan Obama submitted to Congress would cap the annual increase in Medicare costs at the growth rate of gross domestic product plus 0.5 percentage points -- a target that Republican vice presidential candidate Paul Ryan also adopted for his Medicare cost-cutting plan. Ryan would convert Medicare from a defined-benefit plan to a “premium support” model, offering subsidies for individuals to purchase insurance.
“The president has been very clear that controlling the growth of health-care costs is essential to our long term economic security,” Obama campaign spokesman Adam Fetcher said in an e-mailed statement. The new health-care law is “making tremendous progress, and the president’s budget contains additional reforms that would build even more on that success.”
Still, recent history shows Congress has balked at permitting reductions in Medicare payments to politically influential groups, even if the cuts are mandated by law. A provision in the 1997 Balanced Budget Act cutting Medicare-reimbursement rates to physicians has been annually overridden by Congress, a legislative maneuver now so much a part of the rhythm of Washington it has a nickname: “The Doc Fix.”
Reductions in provider payments by the independent panel that Obama’s health law established and shortfalls in subsidies for insurance coverage under the Ryan plan would run into the same political obstacles, Bixby said.
“The underlying problem here is both are trying to do a magic savings approach: Wave the magic wand,” Bixby said. “No cap is going to work if it’s not realistic. That’s what we’ve learned from the Doc Fix. You can put it into law, but if it’s totally unrealistic it isn’t going to happen.”
The Obama-backed Affordable Care Act includes a series of steps intended to improve Medicare finances, both in the immediate years and over the long haul.
Among the moves in the early years are a reduction in payments to private Medicare Advantage insurance plans, new taxes on high-income earners, and a curtailment of growth in reimbursement rates for medical providers other than doctors through annual downward adjustments in payments based on the growth in economy-wide productivity.
Those changes will maintain Medicare’s solvency through 2024, which otherwise would only last until 2016, said Tricia Neuman, a senior vice president at the Kaiser Family Foundation and director of the health research group’s Medicare program.
Even so, Medicare chief actuary Richard Foster cautioned in a 2012 report that it would require “unprecedented changes” for health-care providers to lower costs enough to match improvements in the overall economy’s productivity.
“The best available evidence indicates that most health-care providers cannot improve their productivity to this degree -- or even approach such a level -- as a result of the labor-intensive nature of these services,” Foster wrote in an actuarial opinion contained in Medicare’s 2012 trustees report.
To be certain, Romney has provided few specifics on how he would contain Medicare costs other than by converting the program to a subsidy for individual insurance purchases. In contrast to Ryan and Obama, he doesn’t include a cap in the annual growth of Medicare expenditures in his plans.
Romney has also offered few details on his tax plan. He says he will cut individual income tax rates by 20 percent, eliminate the estate tax and alternative minimum tax and reduce corporate income taxes without adding to the budget deficit. He has said he will pay for them by closing loopholes, though he hasn’t identified which ones.
Peter Orszag, Obama’s former budget director and one of the architects of the health law, said White House policies already have contributed to a “remarkable” slowdown in Medicare cost growth.
The program’s costs grew by 3.2 percent during the fiscal year ended in September 2012, according to the Congressional Budget Office. By contrast, annual growth averaged more than 10 percent over the previous four decades, Orszag said.
Orszag attributed the slower increases to “the leading edge” of changes in medical-care practices such as the use of computer software in medical treatment decisions that “are being actively encouraged by Medicare policies.”
The health law also calls for programs to test longer-term strategies to lower costs. Among them are financial penalties for hospitals with high readmission or infection rates and research on comparative effectiveness of medical procedures. It also authorizes accountable-care organizations, which award hospitals and physician groups a share of any savings they can produce by streamlining care and reducing unnecessary or wasteful services.
“They’ve planted a thousand seeds and are hoping one or two of them will bloom,” said Marc Goldwein, senior policy director for the Committee for a Responsible Federal Budget, a nonprofit Washington group.
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