President Obama’s $700 Billion Medicare Problem

Published August 15, 2012

National Review Online

Governor Mitt Romney’s selection of Representative Paul Ryan as his vice-presidential running mate is revealing on a couple of levels.

First, it shows that Governor Romney has a keen eye for talent (which probably explains his success as a CEO). Representative Ryan has become an intellectual leader, perhaps the intellectual leader, of the House GOP, and that didn’t just happen by accident. He worked at it for years, taking countless political risks along the way. To get where he is today, he studied the issues hard, and thought through the policies. He taught himself how to be an effective communicator—with a lot of practice, and no doubt plenty of trial and error. In short, Ryan’s ascendance is a testament to his talent and drive—just the qualities Romney needs most both to win the presidency and to govern effectively. And to his everlasting credit, Romney had the courage to choose the right man for the job despite the fact that Ryan’s skill and effectiveness pose such a threat to defenders of the status quo that they will say and do just about anything to stop him.

The selection of Ryan has also been a revealing moment for the mainstream media. In these first days after the announcement, the media have largely played along with the Democratic story line that the selection of Ryan will put the Republicans on the defensive over Medicare in the run-up to November. They have told this story by repeating over and over completely inaccurate descriptions of the policy positions of the candidates.

A fair reading of the facts shows that the Romney-Ryan campaign has every reason to believe that they can put the Obama-Biden ticket on the defensive over Medicare. The most salient fact is that, to pass Obamacare, the president cut Medicare by more than $700 billion over the coming decade, according to the Congressional Budget Office (CBO). And these cuts are of the worst kind. They are arbitrary and across the board. They reduce reimbursement rates for all who provide services to Medicare patients, regardless of how well or badly they treat their patients. Among the cuts is a $156 billion reduction in payments to Medicare Advantage plans over ten years. These cuts will force seniors to pay $3,700 more for their health care by 2017, according to a study I co-authored with Robert Book (for those who might be interested, the cuts are distributed by congressional district here). The Medicare trustees project that the cuts will drive some 4 million seniors out of Medicare Advantage plans between 2012 and 2018.

Further, the Medicare cuts in Obamacare would slash payment rates for hospitals, so much so that the chief actuary of the program has warned repeatedly that the cuts will jeopardize access to care for seniors. He has estimated that if the cuts go into effect, 15 percent of hospitals and nursing homes will have to stop taking Medicare patients to avoid the large financial losses that result from getting paid at Medicare rates. By 2030, some 25 percent of these institutions would need to drop out of the Medicare program.

Moreover, as Charles Blahous has pointed out, the Medicare cuts in Obamacare aren’t used exclusively to replenish the trust funds that pay Medicare benefits. Instead, they are used to pay for a massive expansion in entitlement spending. To put it in slightly more political terms, President Obama has raided Medicare for $700 billion to pay for his government takeover of American health care. The attack ad practically writes itself, and in fact has now already been written.

The Democratic response to these points is that Representative Ryan’s budget plan, which passed the House in April, includes these Medicare cuts, too. But that’s an oversimplification. The Ryan budget retained the savings associated with the Obama Medicare cuts largely because they are in the current-law baseline, and the GOP wasn’t able to find enough spending cuts elsewhere to offset them. But that doesn’t mean the specific cuts in Obamacare were endorsed. They weren’t. Ryan’s budget allows the substitution of sensible ways of saving money in Medicare for the arbitrary and harmful cuts contained in Obamacare.

More important, the Ryan budget does not use the Medicare cuts to pay for a new entitlement program. The savings are used exclusively to replenish the Medicare trust fund.

But the Romney-Ryan campaign doesn’t need to bother with this distinction, as Governor Romney has made it clear that he does not support retention of the Medicare cuts and won’t include them in the budget he will prepare if elected. Yes, that’s a difference with the Ryan budget, but so what? It’s the right and the most defensible position, and it creates a defining contrast with the president that can and should be exploited to the maximum. Ryan and others can explain that, if he and Romney are elected, they will be in a position to find even greater savings elsewhere that will allow cancellation of the entirety of the Medicare cuts without raising the deficit.

The Obama campaign will try mightily over the coming weeks and months to paint the core of the Romney-Ryan approach to Medicare reform as dangerous to seniors’ health. Unfortunately for the Democrats, the facts show otherwise. The Romney-Ryan plan, which is essentially the same “premium support” plan that Democratic senator Ron Wyden advocated in tandem with Ryan, would be gradually phased in. It doesn’t change anything for current beneficiaries or those nearing retirement. For future retirees, it would harness the power of the marketplace to hold down cost growth. This is exactly how the Medicare drug benefit works today, and it has been a tremendous success. In 2013, the average premium will be $30 per month for seniors—the same as in 2012, and just $6 more than in 2006. Overall, costs for the program are now more than 40 percent below original projections.

A recent study in the Journal of the American Medical Association—written, ironically, to undermine the concept of premium support—shows that private plans were able to deliver the Medicare package of benefits for $64 less per month than the government-run option in 2009. This proves the point that Ryan has been making all along, which is that a plan based on competition and choice can save money for the government without harming the quality of care for seniors. And it refutes the argument still being made by many Democrats that somehow the Romney-Ryan plan would drive up costs for seniors by forcing them into private plans that cost more than traditional Medicare. That’s demonstrably not true, as the JAMA study shows.

Of course, it’s just a fact of political life that the media are unlikely to get any of this right. They are reflexively inclined to cast the GOP as the enemy of seniors, no matter what the facts say. But that shouldn’t stop the Romney-Ryan campaign from going on offense. President Obama is vulnerable on Medicare. He is imposing deep and irrational cuts on the program—cuts that will impede access to care for seniors and drive up its c
osts. And he has raided the program for his big-government ambitions.

The Romney-Ryan campaign can do some real damage with that ammunition between now and November.

James C. Capretta is a Fellow at the Ethics and Public Policy Center and a Visiting Fellow at the Heritage Foundation.

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