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The Medicare Trustees issued a report that shows a much lower path for Medicare spending. Mark Thoma has links to two people, including Paul Krugman, who triumphantly say that this shows that health care reform has solved the long-term problems with Medicare. On the other hand, John Goodman notes,

Noting that the formal Trustees report assumes Medicare physician fees will be reduced by 30% over the next three years, Chief Actuary Richard Foster says that's "implausible." In addition, the Trustees report assumes Medicare fees will fall below Medicaid rates by 2019

A huge chunk of the financing for health care reform comes from reducing payments to physicians under Medicare. The Trustees' report takes those cuts at face value, because that is what the law says. However, other experts, including the Congressional Budget Office and Medicare's Chief Actuary, have expressed doubts that these cuts will take place, based on past experience.

Moreover, even if the Medicare cuts take place, it is double-counting to suggest that they will both save Medicare and pay for Obamacare's health insurance subsidies. They can do one or the other, but not both.

Obamacare looks to me like the Massachusetts plan, which was supposed to save money, but did not. So I tend to think you have to be pretty gullible to believe that Obamacare will save money.

Speaking of gullibility, that is the topic of a new paper by Andrew Odylzko one of my favorite writers on economics and technology. Odlyzko interprets the late-1990's Internet bubble and the housing/mortgage bubble in terms of gullibility, which is fine. I He claims that it is possible to track indicators in which people are becoming gullible, and there I found the paper unconvincing. But so far I have only skimmed the paper. It is part of a book that I definitely plan to read when it comes out. Thanks to Nick Schulz for the pointer.

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COMMENTS (11 to date)
John Thacker writes:

The report itself ends with a "Statement of Actuarial Opinion" that lists several reasons and concludes:

For these reasons, the financial projections shown in this report for Medicare do not represent a reasonable expectation for actual program operations in either the short range (as a result of the unsustainable reductions in physician payment rates) or the long range (because of the strong likelihood that the statutory reductions in price updates for most categories of Medicare provider services will not be viable). I encourage readers to review the “illustrative alternative” projections that are based on more sustainable assumptions for physician and other Medicare price updates. These projections are available at PDF.
gnat writes:

I think you hasve misstated the cricism. My undrestanding is that Krugman compared the 2009 and 2010 projections both of which include the 30 percent reduction in physian fees assumed by a past Republican Congress.

The difference between the 2009 and 2010 projections Krugman cites reflect the projected Medicare savings from the Healthcare Act. The critcism from the chief actuary is both that the 2010 projection still includes 30% factor, and that it is unlikely that the expected productivity savings from the healthcare act will be realized.

John Goodman writes:

Paul Krugman doesn't know anything about health care. He probably doesn't realize that the reason for the huge difference in the two reports is the assumption that Medicare fees can fall further and further behind private sector fees indefintely into the future -- despite the fact that we all are supposed to be in the same health care system.

Of course Medicare's future is going to look better if you assume that Medicare will pay Medicaid rates by 2019, will pay half of what private payers pay by 2050 and will pay one-third by 2080.

Of course, the seniors won't be getting health care. But the program's finances will look great.

Lord writes:

It would be gullible to assume this will cut spending, but it is not to assume this will reduce it over what it would be otherwise. It is a matter of relative expectations.

Mr. Econotarian writes:

How can Krugman be so ignorant as to imagine the 30% doctor pay cut could ever happen (seeing how it keeps getting put off)?

Something about winning the Nobel prize seems to make people get dumber...

David C writes:

"Obamacare looks to me like the Massachusetts plan, which was supposed to save money, but did not."

I wasn't aware that the State of Massachusetts, the Chief Actuary of Medicare, and the CBO used the exact same methods to analyse Obamacare and Massachusetts Care, nor was I aware that the CBO didn't revise their estimates based on recent evidence such as the situation in Massachusets. I guess I must have been pretty gullible to believe those things.

Rebecca Burlingame writes:

It is unfortunate that the primary focus by government - once again - is on doctors. For anyone with chronic illness who spends a lot of time in and out of hospitals, doctors are a relatively small expense compared to the rest...especially in that the doctors concerned about those who can't pay, make the decision to treat them or not irregardless of Medicare.

The primary issue that still needs to be addressed for saving money, is more efficient alternatives than constant hospital stays for those with either chronic illness or end of life concerns. That is where a ton of money is being spent, which continues to swallow money allocated for everything else.

steve writes:

1) Wouldnt an economist expect that an economic downturn might affect projected cost savings in the MA plan?

2) The schizophrenia I see on the part of the right about Medicare payments is disturbing. All of the offered plans from the right involve reducing the amount spent on Medicare, which is good because it will reduce the debt. The ACA reducing Medicare payments is bad because elders will not be getting care.


R Richard Schweitzer writes:


Who are they - they are the All-Obama Team

Every single one is a current political appointee.

Now, there are supposed to be some "Public Trustees", but they haven't been found yet, if ever to be; perhaps some union "leaders?"

However, even these "Trustees" make it clear that the report relies on assumptions, which throughout are noted as tenuous.

John Thacker writes:
It would be gullible to assume this will cut spending, but it is not to assume this will reduce it over what it would be otherwise. It is a matter of relative expectations.

Lord, considering that the Sustainable Growth Rate mechanism in Medicare has had no cuts whatsoever, I'd say that it's gullible to expect different results when the same thing is tried again.

Also consider that this bill has much of the dessert front-loaded and the vegetables at the end (as far as the spending is concerned; the tax increases do come earlier). I'd say that it is actually gullible to believe Congress when it says that it will gladly cut spending Tuesday for more hamburgers today.

The spending increases will happen, the tax increases will probably happen, but the Medicare spending cuts will never happen.

John Fast writes:

Is Krugman willing to place a bet on the matter? I (for one) would love some extra cash.

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