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Another Broken Promise: Obamacare Is Driving Costs Up, Not Down

3:15 PM, Nov 26, 2013 • By JAMES C. CAPRETTA
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The CEA paper also touts Obamacare’s changes to Medicare, claiming that these cuts will lead to system-wide efficiency gains.  But, again, exactly the opposite result is likely to occur. One of the most significant changes targets the private sector component of the program, called Medicare Advantage, with $200 billion in cuts over ten years.  These cuts will force millions of seniors out of the Medicare plans they like and want to keep and back into the fragmented and inefficient fee-for-service component of Medicare.  The CEA paper claims that changes in Medicare can lead to spillover effects in the rest of the health system. That is true.  But there’s also abundant research showing that high enrollment in Medicare Advantage leads to cost reductions in fee-for-service and the commercial market too. That’s because hospitals and physician participating in more efficient Medicare Advantage plans tend to practice in a similar fashion for their non-Medicare Advantage patients too.  Cutting Medicare Advantage simply puts more people into costly and inefficient fee-for-service medicine, with no real prospect of improved cost performance anytime soon.

The other big Medicare cut is a 1.1 percentage point reduction in the payment increases given to hospitals and other providers every year.  The claims of long-term deficit reduction from Obamacare are based entirely on this blunt, across-the-board reduction that makes no distinction among the high and low value providers of care.  The cumulative effect of this cut would be devastating for seniors enrolled in Medicare.  By 2019, Medicare’s actuaries expect it to leave 15 percent of hospitals and other facilities with negative total margins, and thus little choice but to limit their Medicare admissions.  By 2030, the percentage of facilities in this position would reach 25 percent.  The actuaries are so dubious that these cuts can be sustained that they, as well as the Congressional Budget Office, have issued alternative Medicare projections that assume the cuts will be overturned.  If they are, the supposed deficit reduction from Obamacare that CEA touts would vanish altogether.

Most Americans have been skeptical from day one about the president’s cost claims for Obamacare.  Commonsense indicates that a program entitling millions of people to new health benefits is likely to increase cost pressures, not reduce them. Nothing in the CEA paper should convince anyone to abandon their skepticism.

James C. Capretta is a senior fellow at the Ethics and Public Policy Center and a visiting fellow at the American Enterprise Institute.

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