Democrats Fix For Medicare –Price Controls

The two party’s approaches are quite different. The Democrats’ plans are contained generally in the Affordable Care Act (ACA) and for the most part are based on rate or price controls. This is Part 4 of my series on Medicare. 


Politicians realize that Medicare will not be able to
continue on its current track. Something has to change since the country will
simply not be able to afford the inexorable growth and expenditures. But
politicians do not like to take away entitlements so proposals generally are
couched in vague terms and often with positions that are unrealistic.


most commented upon action today from the ACA/Obamacare is that the payments to Medicare providers
will be reduced over ten years by $716 billion. These include reductions in
hospital reimbursements and reductions in payments for Part C plans (Medicare


cuts were instituted to free up dollars for other aspects of the ACA. Some
would call this “robbing Peter to pay Paul.” But others would argue that it is
simple prioritization of the funds available; kudos to those who accepted the
responsibility for making the difficult decision. Basically these are “price
control” mechanisms but price controls rarely work; Medicare has used them for
decades with obvious inadequate results. And as demonstrated over the years, providers
will make up the difference with more visits, procedures, hospitalizations,
etc. The proponents note that the plan only reduces payments to the providers;
it does not cut benefits. How reducing provider payments will not ultimately
result in less for the beneficiaries is a legitimate question.


payments were scheduled to be cut by about 27 percent December 31, 2012. This
was based on a formula established in 1997 called the Sustainable Growth Rate.
It goes into effect unless Congress explicitly exempts it. Over the years,
Congress has repeatedly given such an exemption but only for a short time,
allowing themselves to claim that eventually they would enact the cuts and use
them to offset budgets. And true to form, Congress (Republicans and Democrats
alike) – after the election –created another short term exemption. Hardly a
satisfactory way to govern.  


ACA recognizes that there is a shortage of primary care physicians (PCP) and
that PCPs are under reimbursed. To this end, PCP reimbursements will be
increased by about 10% over a few years’ time. Just how this increase
corresponds with the 27% reduction or whatever number in the future is unclear.


ACA also creates some new benefits for enrollees. Chief among them relates to
prevention and wellness. Each enrollee is allowed an annual extensive
preventive medicine evaluation with no deductibles and no co-pays. Medicare
also pays the full cost of screening such as mammography and colonoscopy,
cholesterol tests, etc. along with appropriate vaccinations. An interesting
sidelight – if a colonoscopy detects a polyp which is removed during the
procedure, that converts it to a therapeutic procedure with deductibles and


ACA created the Independent Payment Advisory Board (IPAB) whose job it will be
to recommend steps to save dollars within Medicare without reducing benefits or
without expecting beneficiaries to pay more – a tall order. They will be
nominated by the President, ratified by the Senate, have prolonged terms and
their recommendations become effective unless Congress votes them down en bloc,
i.e., no cherry picking. Republicans have criticized this plan as allotting too
much power in a small group of individuals not accountable to anyone. Democrats
counter that the structure allows them to be honest brokers unaffected by
competing constituencies. 


there has been controversy within Democratic circles. Howard Dean, a physician,
former presidential primary candidate and Democratic Party chair, recently
wrote an op-ed in the
Wall Street Journal that the IPAB should be repealed
because it will not control costs, will become essentially a rationing
organization and will lead to much added bureaucracy in medical care delivery.
He added that rate setting has never worked in the past forty years. Within two
days, Peter Orszag, former director of the Office of Management and Budget for
President Obama retorted to the contrary on
Bloomberg View. Clearly it is controversial. 


the Democrat’s plan is projected to reduce annual Medicare cost escalation from
the currently expected about 4% to about 3.5% per year over the coming decade.
This may not seem like much but compounded each year it really adds up.


my next post, the Republicans’ plan – quite different from that of the