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03.18.2015 2

Meet the Med-fix, the new doc-fix

By Robert Romano

gdp and medicareThe sustainable growth rate is history.

Once contained in the Balanced Budget Act of 1997 as its centerpiece, under the provision the costs of Medicare were going to be contained, and the program would be saved from insolvency.

That year, the Medicare trustees were predicting that the Hospital Insurance Trust Fund would be exhausted by 2001. The government shutdowns of the 1990s over the spiraling growth of Medicare spending, as it turns out, were well-founded. The program was on the precipice of failure.

As it should have been. Costs were out of control. From 1967-1997, Medicare spending nominally increased an average of 16.17% every year, with the economy only nominally growing 7.93% before adjusting for inflation, according to data compiled by the Medicare trustees and the Bureau of Economic Analysis.

Then the sustainable growth rate was implemented. The purpose was to ensure that nominally, the cost of the program would not exceed the growth of the economy, something that had never before been achieved.

And then something happened for the first time in the history of the program. Spending was cut — right at the time the economy was surging in the late 1990s.

Guess what? The reforms, enacted by a Republican Congress and President Bill Clinton, combined with a booming economy, saved the program. By 2000, the Medicare trustees had dramatically improved the program’s outlook. The trust fund would not be exhausted until 2025, they said.

But by 2003, physicians were complaining about relatively lower reimbursement rates by the government for services the health care providers were rendering. In 2002, the trustees said the program’s trust fund would now last until 2030.

With the program given a new lease on life, a Republican Congress and President George W. Bush then saw fit to undo the reforms that had been enacted just a few years earlier. It was the first so-called doc-fix. It would not be the last.

Now, a full 17 doc-fixes and a catastrophic recession later, the so-called sustainable growth rate has all but faded from memory. All the while, the doc-fix — and the introduction of the prescription drug benefit under Medicare — rapidly ate into the trust fund. By 2009, at the height of the recession, trust fund exhaustion was predicted by 2017.

But by 2010, the fortunes of the program had dramatically shifted. Then, the trust fund would be exhausted by 2029. But in 2011 and 2012, it was back down to 2024.

Now, after Obamacare, Medicare spending has been cut once again. In 2013, the trust fund would be exhausted in 2026, and in 2014 the trust fund was said to be exhausted in 2030. Where it goes next is anybody’s guess. The trust fund exhaustion date has been pretty volatile.

Now, it is in that context that House Republicans have unveiled their latest budget plan. In it, they propose several key measures related to Medicare.

First, the sustainable growth rate is being done away with for good, a plan that could add as much as $130 billion to the budget deficit over the next decade.

Second, a federal exchange will be set up for seniors to purchase Medicare plans.

Third, the budget will create a “catastrophic cap on annual out-of-pocket expenses — an important aspect of the private health insurance market to safeguard the sickest beneficiaries who are most in need of medical services, and which is currently absent from Medicare.”

Right off the bat, all of the provisions call for increasing, not decreasing or controlling, the costs of Medicare.

It is not until 2024 that means testing for all beneficiaries would be implemented, such that, says the House Budget Committee, “Payments would be adjusted so that those with illnesses would receive higher payments if their condition worsened; lower-income seniors would receive additional assistance to help cover out-of-pocket costs; and wealthier seniors would assume responsibility for a greater share of their premiums.”

They’re calling it entitlement reform. And apparently, House Minority Leader Rep. Nancy Pelosi (D-Calif.) is said to have agreed to some or all of the reforms.

Which will probably never even be implemented.

In fact, it sounds a lot like the 1988 Medicare Catastrophic Coverage Act, which put a cap on catastrophic out-of-pocket expense, and asked wealthier beneficiaries to pay for it by taking a cut in benefits.

Like the sustainable growth rate, it did not last.

As the Week reports, “In 1989, Rep. Dan Rostenkowski (D-Ill.), then the powerful chairman of the House Ways and Means Committee, was chased down a Chicago street by elderly constituents furious over his support for the Medicare Catastrophic Coverage Act. Designed to protect seniors from catastrophic medical expenses, the act passed with bipartisan support in Congress, but some seniors were outraged that it was to be financed by a surtax paid by the wealthiest 40 percent of beneficiaries. With the crowd shouting ‘Coward!’ and ‘Impeach!,’ Rostenkowski had to cut through a nearby gas station and sprint to his waiting car. One elderly protester threw herself on the hood to prevent his escape.”

Three months later, the act was repealed. And come 2024, so too will the means testing under Medicare. Maybe they’ll call it the Med-fix. And every year, Congress will act to pass a stopgap measure to prevent the reform from taking effect. That is, if it even passes Congress in the first place.

The truth is, if members were serious about putting the program on better footing, whether through the sustainable growth rate or through means testing, they would make the changes right now.

After all, if the program is in as much danger as the trustees say, with the trust fund being exhausted anywhere from 2024 to 2030, why wait until 2024 to make such reforms?

In the mean time, the parts of the plan you can count on being implemented for sure are the increases in benefits and in doctor payments. When it comes to the cuts, if history is any guide, they won’t last for very long even when the trust fund is exhausted — if they are ever even implemented.

Robert Romano is the senior editor of Americans for Limited Government.

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