D. Dowd Muska


Barack Obama, Savior of Medicare?

January 23, 2014

Think Obamacare’s a disaster? Take a look at Medicare.

The welfare program, created during the maelstrom of arrogance and ignorance that was the Great Society, covers more than 50 million Americans. Tens of millions will be added as Baby Boomers gradually attain eligibility. Funded by taxes and “premiums,” in 2012, Medicare spent $574 billion. It gobbles up 3.6 percent of gross domestic product, and will probably seize 5.6 percent of the nation’s output by 2035.

It’s also running out of money. The “Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds” have an infinite-horizon solvency gap of $43 trillion. (Using more “plausible assumptions,” economists John C. Goodman and Laurence J. Kotlikoff wrote in The Wall Street Journal last summer, “the long-term shortfall is more than $100 trillion.”) A problem for future generations? The earliest crisis point arrives when most of us will still be around. According to the latest report from Medicare’s trustees, Part A’s “projected depletion date … is 2026, at which time cumulative expenditures would have exceeded cumulative tax revenues by enough to equal the initial fund assets accumulated with interest.” In other words, in a dozen years, some decisions will need to be made.

Grandma’s triple bypass, or the F-35? Surgery for Uncle Bill’s COPD, or farm subsidies? Great-granddad’s expensive and risky hip replacement, or a new toy for NASA?

Tough choices, indeed, but moonbat wonks have good news for Medicare worrywarts: Obamacare will save the program.

No. That’s not a joke.

The pace of America’s runaway healthcare demand has slowed. Since 2008, the annual rates of increase have been several percentage points below the historical average. Liberals have been quick to cite the “Patient Protection and Affordable Care Act.” Since the Congressional Budget Office’s 2010 estimate, The Atlantic’s Derek Thompson gushed, “projected Medicare spending between 2013 and 2020 has fallen by just over $1 trillion.” The White House boasts that Obamacare’s “Medicare reforms are likely to reduce health care spending and improve quality system-wide.”

Charles P. Blahous has a different perspective -- one grounded in data, not ideology. The scholar worked for George W. Bush, but don’t hold that against him. He’s also a trustee for federal “entitlements,” and in an analysis for George Mason University’s Mercatus Center, avers that “the recent deceleration in national health care cost growth does not translate into a significant probability that substantial further legislative changes to correct Medicare finances can be avoided. To the contrary, such legislated corrections are overwhelmingly likely to be required under almost any realistic scenario.”

Blahous writes that since no one has been able to adequately explain the weakening in America’s healthcare shopping spree, there’s no reason to expect that it will continue. Theories abound, but Occam’s Razor counsels that the moderation “coincided with a recession-induced slowdown in many other economic factors including economic output, general price inflation, and personal income growth.” So a return to large, annual increases following a robust recovery is hardly out of the question. Besides, even if lower rates are maintained, “well before” Obamacare squeaked through Congress, Medicare’s trustees “assumed … that national health expenditure growth would eventually decelerate to converge with broader economic growth trends.”

Another reason for doubt is that Obamacare’s Medicare-specific reforms “have yet to take effect.” What’s more, several of the marquee measures have drawn withering fire. As Blahous notes in an article in the current issue of Hoover Digest, there is “strong bipartisan opposition” to the Independent Payment Advisory Board, the entity “charged with implementing policies to hold down Medicare costs with minimal congressional interference.”

Provider-reimbursement adjustments are central to Obamacare, with the goal of limiting increases to the rate of “private nonfarm multifactor productivity.” Blahous is skeptical: “These aggressive annual reductions … remain controversial, and there is significant disagreement within the expert community about how the medical and political systems will respond to them. Even under the assumption that they are successfully implemented, concerns have been raised about the proceeds of these savings being spent on an ambitious new federal health entitlement enacted under other provisions of [Obamacare], instead of being kept available to improve the federal government’s ability to finance Medicare.”

Read Blahous’s paper and it becomes obvious that proponents of the Obamacare-as-Medicare-solution hypothesis are either clueless or dishonest. The administration and its defenders deserve credit for creativity, though. It’s customary for leftists to peddle tax hikes on “the rich” as the answer to the nation’s looming unfunded-liabilities catastrophe. They’ve come up with something different this time. But it’s just as specious.

D. Dowd Muska (www.dowdmuska.com) writes about government, economics, and technology. Follow him on Twitter @dowdmuska.

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