The Coming Medicare Calamity

The Medicare Trustees released their annual report yesterday. Today, at a conference hosted by the American Enterprise Institute, Medicare’s chief actuary, Richard Foster, summarized the Trustees’ report.

The picture isn’t pretty. The report projects that the Medical Hospital Insurance trust fund will run out of assets in 2024. But, as Foster explained, even this dire projection is almost certainly too optimistic. That’s because the projections are based on changes to Medicare effectuated by the Affordable Care Act (Obamacare) that improve Medicare’s financial outlook, but that, in all likelihood “will not be viable in the long range.”

For one thing, current law would require a physician fee reduction of an estimated 30.9 percent on January 1, 2013. But this is, in Foster’s words, “an implausible expectation.”

Moreover, Obamacare calls for annual price updates for most categories of non-physician health services to be adjusted downward each year to correspond with the growth in economy-wide productivity. But, says Foster, “the best available evidence indicates that most health care providers cannot improve their productivity to this degree—or even approach such a level—as a result of the labor-intensive nature of these services.”

Consequently, “the prices paid by Medicare for health services are very likely to fall increasingly short of the costs of providing these services.” Indeed, “Medicare prices would be considerably below the current relative level of Medicaid prices, which have already led to access problems.”

Congress could noy tolerate this situation. According to Foster, well before we reached this 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.”

Congress would intervene by overriding the productivity adjustments, something it has done repeatedly in the case of physician payments. But these productivity adjustments are built into the Trustees’ projections. Without them, Medicare costs “will be substantially higher in the long range than those projected under current law.”

When we consider how frightening even the overly optimistic costs projected under current law are, there can be little doubt that, without drastic action, we are headed for a Medicare calamity. Meanwhile, the Obama administration has nothing to offer in the face of the impending calamity, other than engaging in demagoguery against those who attempting to head it off.

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