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Morning Jay: Democrats Vulnerable on Medicare

6:00 AM, Aug 15, 2012 • By JAY COST
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The conventional wisdom on the state of the 2012 presidential race is that, thanks to his endorsement of the House GOP Budget and his selection of Paul Ryan to be his running mate, Mitt Romney has opened himself up to one of the Democrats' favorite attacks -- fear-mongering over Medicare, or "Mediscare."

obama and pelosi

This consensus is wrong; instead, the Democrats are much more vulnerable on this issue in 2012.

Why is that?

First, consider the context of the Medicare program, which is currently putting out more money than it is taking in. Within the next few years – nobody is quite sure how long – the Medicare Hospital Insurance (HI) Trust Fund is going to go broke. And, this is not “going broke” in the same way Uncle Sam does; whenever that happens, he just borrows (or, in the age of Quantitative Easing, prints) more. Not true here. When the HI Trust Fund goes broke, we’re going to see cutbacks in payments.

The Ryan Roadmap – as passed by the House of Representatives – solves that problem by transforming traditional Medicare from a guaranteed benefit program into a premium support program. The idea is to leverage the efficiencies of the free market to keep benefits the same while lowering the costs: private insurers would compete for the business of Medicare recipients, thus keeping the program from going bankrupt. Importantly, this change will apply only to people who are now 54 and under.

The Democratic claim is that the GOP is destroying Medicare and endangering our seniors. This is doubly false. Today’s senior citizens will continue to enjoy traditional Medicare under the Ryan plan, and as for tomorrow’s seniors? Well, they were never bound to enjoy traditional Medicare, anyway.

Meanwhile, Democrats have substantial vulnerabilities of their own on this issue.

Rather than instituting free market reforms, the Democrats are applying governmental infrastructures like the Independent Payment Advisory Board (IPAB). This, they hope, will tame the runaway cost of Medicare, but it also will ruin traditional Medicare for future recipients as well. The program will be fundamentally different in the future than it is today, thanks to the IPAB, which will be unelected and largely free to act without interference from Congress. If the GOP is vulnerable on premium supports, Democrats are at least as vulnerable on the IPAB.

But it gets worse for LBJ’s party, which two years ago altered Medicare in ways that would have made the ornery old Texan spit nickels. Obamacare mandated hundreds of billions of dollars be cut from the Medicare program, which creates two, enormous political vulnerabilities for Democrats.

First, some of the cuts are likely to undermine the availability of care. The following is from the chief actuary for Medicare (emphasis mine):

The  Affordable Care Act requires permanent  annual productivity adjustments to price updates for most providers (such as hospitals, skilled nursing facilities, and home health agencies), using a 10-year moving average of economy-wide private, non-farm productivity gains.  While such payment update reductions will create a strong incentive for providers to maximize efficiency, it is doubtful that many will be able to improve their own productivity to the degree achieved by the economy at large...

Thus, providers for whom Medicare constitutes a substantive portion of their business could find it difficult to remain profitable and, absent legislative intervention, might end their participation in the program (possibly jeopardizing access to care for beneficiaries). Simulations by the Office of the  Actuary suggest that roughly 15 percent of Part A providers would become unprofitable within the 10-year projection period as a result of the productivity adjustments.

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