According to the Fidelity analysis, a couple turning age 65 in 2012 will face lifetime health-care costs of $240,000. That’s $10,000 more than the estimate provided by the company last year for such a hypothetical couple, and $80,000 more than the estimate from 2002, when Fidelity initiated the series.
Fidelity stressed in the press release announcing its findings that health-care costs are expected to continue to rise rapidly in the future, and much faster than incomes. That’s especially relevant for seniors, who often live on fixed incomes that rise only with economy-wide inflation, not economic growth, and who have limited ability to make adjustments in their life plans to boost their incomes in their retirement years. The fact that Fidelity continues to project rapid health-care-cost growth is also a strong indication that the company does not expect Obamacare to “bend the cost curve” any time soon.
Still, several news stories chose to focus not on this aspect of Fidelity’s analysis but on something that wasn’t even in the report this year—namely, that, in 2011, Fidelity dropped its lifetime health-care-cost estimate for seniors by $20,000 based on the supposed benefits provided to Medicare beneficiaries in Obamacare. Some news stories are spinning this to suggest that repealing Obamacare could “cost” seniors $20,000.
This is utter nonsense.
For starters, as the Fidelity announcement indicates, the analysis conducted by the company is based only on seniors enrolled in the traditional fee-for-service Medicare program. That means it excludes seniors enrolled in the private-plan option available in Medicare, known as Medicare Advantage. Today, about 25 percent of Medicare beneficiaries are enrolled in Medicare Advantage plans. Excluding them from the analysis significantly distorts the findings.
In a report I prepared with Robert Book for the Heritage Foundation, we found that Obamacare will cut Medicare Advantage payment rates by an average of $3,700 per beneficiary in 2017, or 27 percent below the payment rates that would have been made without Obamacare. These cuts will translate directly into higher health-care costs for seniors. Seniors who remain in Medicare Advantage will face higher costs, because the cuts will force the plans to cut back on the benefits they offer and to charge higher cost-sharing for the services they do cover. Further, seniors who will be pushed out of Medicare Advantage and back into the traditional program will lose entirely the added benefits provided by most Medicare Advantage plans. None of this is captured in Fidelity’s analysis.
This is no small matter. Seniors losing $3,700 per year from enrollment in Medicare at 65 until their deaths at age 77 or 78 would lose about $44,000 in benefits over their lifetimes, all because of Obamacare’s cuts. That dwarfs the supposed benefits that Fidelity’s analysis assigns to Obamacare’s closing of the donut hole (the Medicare Part D coverage gap).
The aggregate numbers tell the story too. According to the Congressional Budget Office (CBO), Obamacare’s closing of the donut hole will increase Medicare spending by about $25 billion over ten years. But at the same time, Obamacare’s cut in payments to Medicare Advantage plans will reduce spending by $137 billion over ten years. So the cut exceeds the new spending on the drug benefit by more than $100 billion. Who will bear the burden of those cuts? Seniors will.
Of course, Obamacare cuts many other aspects of Medicare too, beyond the Medicare Advantage reductions (the ten-year cut is $450 billion, according to CBO). Among the many changes are deep cuts in what Medicare pays hospitals and other providers of care—so deep that Medicare’s rates would plummet below the levels provided by Medicaid by the end of the decade. Who will bear the burden of those cuts? Fidelity’s analysis almost certainly assumes that seniors won’t. But again, that’s a dubious assumption. To begin, the actuaries who oversee Medicare’s spending projections have warned repeatedly that these cuts will compromise access to care for seniors because many facilities will be forced to stop admitting Medicare patients. What will seniors do then to get care they need? Whatever the solution is, it will almost certainly mean higher costs for them, in the form of higher premiums for supplemental insurance plans that pay higher rates or perhaps more direct, out-of-pocket spending for services outside of Medicare’s regulatory structure. It is highly doubtful that Fidelity took any of this into account in its “study.”
No doubt Obamacare’s apologists will try to seize on the Fidelity finding from last year and claim the law is actually good for seniors. It won’t work. America’s seniors already understand that cutting Medicare’s reimbursement rates by $450 billion over a decade isn’t going to be good for their health care. No amount of spin is going to change their minds on that.
James C. Capretta is a fellow at the Ethics and Public Policy Center. He was an associate director of the Office of Management and Budget from 2001 to 2004.