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How did President Obama “funnel” $716 billion from Medicare?

Sept. 6, 2012
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It’s the crime of the century! Fortunately, someone was keeping an eye on the President.

VP candidate Paul Ryan sounded the alarm at the Republican convention:

The biggest, coldest power play of all in Obamacare came at the expense of the elderly . . . the planners in Washington . . . just took it all away from Medicare, $716 billion, funneled out of Medicare by President Obama.

That rascal – here we thought he was on our side! After all, he did close the “doughnut hole,” didn’t he? That was supposed to be a good thing.

As usual, however, the facts are a bit more complex than the rhetoric. To begin with, Obama’s Affordable Care Act (“ACA”) didn’t take the money away from seniors – and it’s actually a stretch to say that it took anything at all from Medicare. What the ACA did was primarily to restrict future payments to hospitals and insurance companies for policies that it judged to be wasteful and inefficient. It’s up for debate what doctors will do when their fees are cut, and whether that could have a negative impact on senior health care, but in fact both parties agree that doctors’ fees and provider payments are a good place to make cuts. As a matter of fact, according to CBS News on August 15, “all but four members of the house GOP voted for those same cuts in passing Ryan’s budget plan.”

A good way to judge the efficiency of Medicare is by comparing it to Medicare Advantage, the private competitor to Medicare, which the Tampa Bay Times’ Pulitzer-Prize-winning PolitiFact website describes this way:

Medicare Advantage was started under President George W. Bush, and the idea was that competition among the private insurers would reduce costs. But the [Medicare Advantage] plans have actually cost the government more than traditional Medicare. The health care law scales back the payments to private insurers.

So private insurers offering Medicare charge more than the state plan – so much for the efficiencies of the open market.

But where did that $716 billion (as estimated by the Congressional Budget Office) go, anyway? Of course, it isn’t money, per se; it’s projected savings. Turns out that the dough will be spent to keep Medicare going awhile longer. Another thing that both parties agree on is that if nothing is done Medicare will run out of money in ten years or so, and savings must be found somewhere. In this case the choice was between attempting to discourage waste and inefficiency on the part of providers, or cutting the actual benefits being given to patients. The ACA focused on the former.

Clearly healthcare costs are rising at an alarming rate, and serious efforts must be made (ideally in a bipartisan fashion) to reduce waste and inefficiency. Most industrialized nations have been able to arrange their national priorities in such a way that they can care for their poor, their sick and their elderly. Scare tactics and finger-pointing didn’t get them there, though.