ObamaCare: How to Pay for Delay

ObamaCare: How to Pay for Delay
November 14, 2012

John C. Goodman

John C. Goodman is a senior fellow at The Independent Institute and author of the widely acclaimed... (read full bio)

Regardless of whether they are supporters or opponents of President Obama’s health care law. members of Congress will have to revisit the legislation soon to correct some serious flaws. Here is a revenue-neutral approach to begin the necessary corrections: Delay the scheduled cuts in Medicare spending by five years and pay for that expense by delaying the 2014 start date of ObamaCare by two years.

The reason to delay the cuts in Medicare: all of the pilot programs designed to achieve efficiencies are producing negative or lackluster results, forcing Medicare to fall back on a requirement to reduce doctor and hospital fees to such an extent that will severely impair access to care for the elderly and disabled.

The reason to delay the start date for insuring the uninsured and creating the new health insurance exchanges: almost no state is ready for the scheduled 2014 opening of the exchanges, and a majority have not even tried to get ready.

Pilot Projects Aren't Working

Over the next decade, more than half the cost of ObamaCare is to be paid for by reduced Medicare spending. The Obama administration had hoped to achieve these reductions by increased efficiency, based on the results of pilot projects and demonstration programs.

The problem: the Congressional Budget Office (CBO) has said in three consecutive reports that these projects are not working as planned and are unlikely to save money. These projects are critical to President Obama’s challenge “to find out what works and then go do it.”

These findings are consistent with private sector studies and the experience in other countries. The latest studies find quality report cards don't work and may do more harm than good, that pay-for-performance doesn't work either, and that there is no reason to be hopeful about Accountable Care Organizations.

Even when they work, Medicare pilot programs are often not scalable to every doctor and hospital across the country. One reason: what works for one group of doctors and hospitals may not work for another.

Fee Cuts Will Harm Seniors

When nothing else works, ObamaCare has a fallback mechanism: reduce fees paid to doctors and hospitals. Yet the Medicare actuaries tell us squeezing the providers in this way will put one in seven hospitals out of business in the next eight years, as Medicare fees fall below even Medicaid’s. As Harvard health economist Joseph Newhouse predicts, senior citizens may be forced to seek care at community health centers and in the emergency rooms of safety net hospitals, just as Medicaid recipients do today.

Consider people reaching the age of 65 this year. Under Obama’s law, the average amount spent on these enrollees over the remainder of their lives will fall by about $36,000 at today’s prices. That sum of money is equivalent to about three years of benefits. For 55-year-olds, the spending decrease is about $62,000—or the equivalent of six years of benefits. For 45-year-olds, the loss is more than $105,000, or nine years of benefits.

In terms of the sheer dollars involved, the planned reduction in future Medicare payments is the equivalent of raising the eligibility age for Medicare to age 68 for today’s 65-year-olds, to age 71 for 55-year-olds and to age 74 for 45-year-olds. But rather than keep the system as is and raise the age of eligibility, the reform law instead tries to achieve equivalent savings by paying less to the providers of care.

What does this mean in terms of access to health care? In most places around the country Medicaid patients already have extreme difficulty finding doctors who will see them. In a few more years seniors will have even greater access problems than welfare mothers on Medicaid. We will have a two-tiered health care system, with the elderly getting second-class care.

State Exchanges Aren’t Ready

Beginning in 2014, state health insurance exchanges are supposed to be up and running for individuals and families who lack access to health insurance through their job and do not qualify for Medicaid and other public programs. Up to a certain income level, the health insurance will be subsidized by the federal government. But about one-third of states (16) have done almost nothing to prepare for the 2014 scheduled opening of the state-based exchanges. Another 20 states have made some progress but not enough.

Health insurance exchanges will require significant investments in information technology. However, cash-strapped states were hesitant to spend scarce cash until the Supreme Court ruled on the constitutionality of the individual mandate and the presidential election was resolved.

A Temporary Solution

A two-year delay in implementing coverage expansion provisions would protect seniors for five years from the inevitable rationing that will occur once the cuts to Medicare provider fees take place. In the interim, Congress could consider a slew of reforms that will work by empowering patients, freeing doctors, and allowing competition in the marketplace. The net effect of both measures on the deficit would be a small surplus of $16 billion over ten years.

Bottom line: Delaying the start of these two major provisions will protect seniors, save taxpayers money, and allow lawmakers time to enact health reforms that actually work.

John C. Goodman (john.goodman@ncpa.org) is CEO and Kellye Wright Fellow of the National Center for Policy Analysis and author of the book Priceless: Curing the Healthcare Crisis.

John C. Goodman

John C. Goodman is a senior fellow at The Independent Institute and author of the widely acclaimed... (read full bio)