$245 Billion “Fix” for Medicare Health Insurance

In my previous post, I wrote about how the Congressional Budget Office (CBO) has revised its estimate of the cost of the Patient Protection and Affordable Care Act (PPACA)—the health insurance reform legislation passed by congressional Democrats earlier this year.

The CBO originally said that the bill’s $420 billion in new taxes would more than offset its new spending, reducing the federal deficit by $140 billion over ten years.

In March, the CBO revised its 10-year forecast for the cost of the health care insurance legislation upward by $152 billion, wiping out the projected savings and adding to the federal deficit. In May, the CBO added another $115 billion to the price tag to pay for the cost of implementing the program. Now President Obama is asking Congress to spend another $245 billion over ten years to eliminate the scheduled reductions in payments to doctors through Medicare Part B—also known as the “doc fix.”

The reductions in doctor payments were enacted by Congress in 1997 as part of an attempt to control the spiraling costs of Medicare. Congress linked physician payments to the Sustainable Growth Rate (SGR), a payment index that has not kept up with the Gross Domestic Product (GDP). The SGR would reduce Medicare payments, but Congress has not allowed that to happen. As the CBO wrote in its analysis of the cost of the new health reform legislation:

The sustainable growth rate mechanism governing Medicare’s payments to physicians has frequently been modified (either through legislation or administrative action) to avoid reductions in those payments, and legislation to do so again is currently under consideration by the Congress.

Indeed, the American Medical Association spent millions of dollars on an advertising blitz in May to make sure the “doc fix” legislation passes. Its ads chastised the U.S. Senate for going to its Memorial Day recess before “fixing a scheduled 21 percent cut to Medicare.”

At one point, Congress planned to fix the Medicare payment reductions as part of its comprehensive reform of healthcare. That idea was shelved, however, after the CBO announced that the cost of a permanent “doc fix” would cost $245 billion for the first ten years, pushing the cost of comprehensive health insurance reform into deficit spending. This is something the president did not want to see happen. In his address to a joint session of Congress on September 9, 2009, President Obama said:

I will not sign a plan that adds one dime to our deficits—either now or in the future.  (Applause.)  I will not sign it if it adds one dime to the deficit, now or in the future, period.  And to prove that I’m serious, there will be a provision in this plan that requires us to come forward with more spending cuts if the savings we promised don’t materialize. 

[Italics mine.]

To avoid the appearance of deficit spending, the Democratic leadership in Congress removed the “doc fix” provision from the health insurance reform bill, reducing the spending by $245 billion and leading the CBO to estimate the bill would reduce the deficit by $140 billion over the first ten years.

The deficit reduction came not from economies in health care reform, but from the fact that the bill would collect $420 billion in new taxes over the first ten years.

Nor was the “doc fix” the only assumption that seemed dubious at best. In fact, since the passage of the Patient Protection and Affordable Care Act, the CBO has revised its estimate of the bill’s cost upward by $267 billion (see previous post), not only wiping out the $140 billion in deficit reduction, but increasing the federal deficit by $127 billion during the next ten years. With the $245 billion “doc fix” added in, the deficit for federal healthcare spending over the next ten years will run to $372 billion.

The White House has yet to announce what spending cuts it will put forward to ensure that the Patient Protection and Affordable Care Act will not add “one dime”—let alone $372 billion—“to our deficits.”