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InsiderOnline Blog: August 2010

What If Things that Have No Chance of Happening Happen? Asks Medicare’s Actuaries

As the New York Times tells it, Obamacare has added 12 years of solvency to Medicare’s financial projections. That’s on the authority of the latest set of projections by the Medicare trustees. It appears, however, that the Times reporter didn’t actually read the report very carefully, because if she had she couldn’t have failed to notice that it was a report that disclaimed the very set of projections it was offering.

Why would such a report be issued at all? Every year, the Medicare trustees are required to report on the programs’ solvency based on how the program will be run under current law. Obamacare purports to achieve savings in Medicare by reducing payments to providers. But as Richard Foster, Medicare’s chief actuary, explains in the report, those planned cuts in reimbursements cannot happen without severely restricting the supply of providers who are willing to participate in the program. Foster writes:

By the end of the long-range projection period, Medicare prices for hospital, skilled nursing facility, home health, hospice, ambulatory surgical center, diagnostic laboratory, and many other services would be less than half of their level under the prior law. Medicare prices would be considerably below the current relative level of Medicaid prices, which have already led to access problems for Medicaid enrollees, and far below the levels paid by private health insurance. Well before that point, Congress would have to intervene to prevent the withdrawal of providers from the Medicare market and the severe problems with beneficiary access to care that would result. Overriding the productivity adjustments, as Congress has done repeatedly in the case of physician payment rates, would lead to far higher costs for Medicare in the long range than those projected under current law.

The projections also make unrealistic assumptions on the tax side, as James Capretta points out:

Initially, the law’s steep payroll-tax hike of 0.9 percent of wages will apply only to individual taxpayers with annual incomes exceeding $200,000 and couples with incomes exceeding $250,000. But those income thresholds will not increase with general inflation in the economy. Consequently, as the years pass, more and more Americans, including the middle class, will pay it — at least that’s the theory. Overall, the Medicare tax hikes in the new law are expected to raise about $1.4 trillion over 75 years, in present-value terms. But that assumes America’s middle class will placidly accept the return to the bad-old days of “bracket creep.” A more realistic assumption would be that elected leaders will come under pressure in short order to prevent such a massive tax hike on the middle class and respond accordingly, much as they do today in trying to minimize the tax hikes associated with the alternative minimum tax.

Posted on 08/12/10 11:54 AM by Alex Adrianson

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