Government Health Fixes Will Leave Us Broke, November 13, 2009

By a razor-thin margin, lawmakers approved the trillion-dollar health reform package proposed by House Speaker Nancy Pelosi late Saturday evening. Proponents of the measure claim that it will eventually pay for itself — and even lower the nation’s healthcare costs and the federal deficit.

This is nonsense. For evidence, look no further than our history with Medicare.

Medicare is the federal government’s largest healthcare program. It’s the primary insurance provider for Americans over the age of 65 and currently covers nearly 45 million Americans. Medicare helps to pay for everything from physician visits and hospital stays to prescription drugs and medical devices.

In fiscal year 2008, Medicare spent $455 billion, which accounts for 15 percent of the federal budget. The program is well on its way to insolvency; indeed the Congressional Budget Office predicts Medicare will by bankrupt by 2017. This year, it will spend more than it collects from payroll taxes.

Meanwhile, Democratic lawmakers are trying to make this fiscal disaster even worse. House leaders have proposed a measure — H.R. 3961 — that would change the way Medicare pays doctors at a cost to the federal government of $210 billion.

Why would Democrats possibly want to add another couple hundred billion dollars to Medicare’s balance sheet? Here’s what they were thinking.

For many months, President Obama has said that he won’t sign a healthcare bill that costs more than $900 billion over 10 years. In order to comply with his dictates, congressional leaders decided to pull a fiscal fast one by transferring a big chunk of the cost of reform — the $210-billion “doctor fix” — out of the official package of legislation and into a separate bill.

This fix was introduced because Medicare payments to physicians would fall 21.5 percent in 2010 — and 40 percent over the next five years — without it.

Such cuts would be disastrous for physicians and seniors alike. Physicians who treat elderly populations would go broke. Medicare patients’ access to care would evaporate overnight, as doctors would be unwilling to accept cut-rate reimbursements.

Lawmakers got themselves into this mess more than a decade ago. Since 1997, Medicare’s payment rates have been set by a formula pegged to wage growth called the Sustainable Growth Rate. When wages rose, so did Medicare payments.

But in 2003, the formula dictated that physician reimbursements be cut. Doctors threatened to curtail services to Medicare patients — or even stop treating them altogether. Congress panicked and eventually intervened to postpone the reduction in reimbursements.

This Potomac two-step has repeated each year. Doctors swarm Capitol Hill to protest impending cuts in Medicare reimbursements, and Congress relents by pushing them off for another year. Needless to say, all those postponed cuts have added up.

It’s unclear whether House leaders have the votes to approve the doctor fix this time around. It may not matter, as the Senate already rejected its version of the bill. Instead, the most likely scenario, according to many political analysts, is that lawmakers will simply postpone the cuts for one year — as they have for the past six years — and then put them off again in 2010. And 2011. And 2012.

The lesson for the broader healthcare reform debate? Lawmakers are completely powerless to reduce health costs in existing government health-insurance programs like Medicare — even when those programs are facing bankruptcy.

With this history in mind, are American taxpayers really supposed to believe that Washington will be able to cut health costs by creating and funding a brand new health-insurance bureaucracy for the rest of us?

Lawmakers need to face the facts. Decades of experience with Medicare show that government is incapable of bringing down health costs or keeping health spending under control. The reform packages in the House and Senate would put the same inept managers in charge of everyone else’s health care and stick taxpayers with the inevitable — and mammoth — losses.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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