Tuesday, December 22, 2009

A Lesson for President Obama; You Can't Get Something For Nothing


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It might be interesting to see how the Democrats new Health Care Plan will be funded. Now, there are differences between the Senate and House bills, but the majority of the funding remains the same. Keep in mind that the American people will be taxed for the first 4 years without any improvement in Health Care. It will only be after $400 billion or so has been raised, that there will be enough funding for the Health Care bill. The primary funding will come from $50 billion a year savings by reducing "fraud and waste" from Medicare. This may sound good, but it’s a little dishonest. The so-called waste in Medicare is the 12% cost over standard Medicare that goes to Medicare Advantage. In 1997 Congress introduced Part C (Medicare Advantage) to Medicare. The purpose of the plan was a government paid subsidy to the insurance companies so they can offer low premiums and still pay claims. The reasoning behind the Part C plan was skyrocketing cost of Medicare supplements (Medicare pays 80% and Medicare supplements pay the remaining 20%). Part C would fund Private Health care with Medicare funds to create health plans that combined Medicare and supplements into one plan. The majority of these plans are a HMO/PCP plan, as opposed to standard and more portable "Pay For Service" Medicare coverage. These Part C plans eventually cost 12% more than a standard Medicare coverage, partially due to paying doctors higher salaries, however it still gives a considerable savings to recipients over standard Medicare Supplement plans. Currently about 25% of Medicare recipients belong to a Part C plan. The additional cost of Medicare Part C is about $50 billion a year. In other words, the big savings from a reduction in fraud and waste is simply to de-fund Medicare Part C. It should be noted that Medicare Part C has significantly less fraud than standard Medicare, since most the fraud is a result of the low pay for service rates dictated by Medicare. In this case Democrats have been very disingenuous, as there is no plan for any legislation to prevent any fraud or waste in Medicare, beyond de-funding Medicare Part C.


Medicare has two main avenues for reducing costs. The first is mandating hospital and doctor compensations and the second is working with Part D (prescription) insurance companies to negotiate drug costs with drug producers (Big- Pharm). As I have already stated, poor compensation rates has already led to widespread fraud, so it is doubtful the Feds will lower these rates any more. In order for a standard Medicare doctor to make $200,000 in gross income, they would need to see approximately 35-40 patients a day. This compared to a Medicare Advantage doctor, that see on average about 16-20 patients a day, to make the same $200,000 income. This, according to the Democrats is the waste and fraud that needs to be removed from Medicare. On the subject of Big-Pharm, the option to negotiate lower drug prices will not exists, as Pres Obama made a deal with Big Pharm that removes any negotiations for Medicare drug prices, as long as they did not oppose ObamaCare and pay the Senate Finance Committee $80 billion over ten years. This is estimated to double the cost of prescription drugs for Medicare from $250 billion over 10 years to $500 billion (minus $80 billion of course). President Obama has promised that the Health Care bill will be “deficit neutral”, meaning it will be 100% paid for by cuts in Medicare and new taxes. President Obama (and the CBO) has further said the Health care bill will reduce the deficient $130 billion over the next 10 years. However, this savings will be offset by the $170 billion increase in drug expenditures from President Obama’s deal with Big-Pharm. This also allows President Obama to keep his deficit neutral promise on health care, by simply moving the cost back to Medicare.

There are also unfunded mandates in the Healthcare bill that would increase access to Medicaid. Medicaid is funded by federal and state coffers. This will probably result in an increase in state taxes to cover these mandates, but again these costs do not show-up as Health Care costs. Also, there were some sweetheart deals cut my Harry Reid to buy votes to pass the bill. Nebraska, Vermont and Massachusetts will receive matching funds for new Medicaid enrollment that could cost over $2 billion. Further Sen. Mary Landrieu (La) received $300 million for her vote and the biggest of all, Florida gets a pass on Medicare Advantage reductions to the tune of $25 billion a year. None of these payouts will show up as Health care costs and will simply be added to the deficit. Add it up and Harry Reid will increase the deficit $1 trillion dollars over the next 10 years with these payouts; that's more the total cost of the Healthcare plan!
The say you can’t cheat an honest man, because he knows he can’t get something for nothing. Unfortunately there is no clever saying dealing with deception my misdirection. Perhaps after the real cost of the health care bill is realized, there will be.

**added 04/10/2012: Turns out the CBO misstated the savings from ObamaCare by double counting cuts to Medicare . Medicare Trustees Obamacare Will Increase the Deficit by as Much as $527 billion Medicare trustee suggests that the law will actually increase deficits, over the next ten years, by between $346 and $527 billion In March of 2011, Health and Human Services Secretary Kathleen Sebelius admitted that the law double-counts its reductions in Medicare spending, by claiming that the law both reduces the deficit and extends Medicare’s solvency.

Chuck Blahous, who was appointed by President Obama to be a public trustee of the Social Security and Medicare programs...  estimates that at least “$470 billion of the Medicare savings under the ACA scored by CBO through 2021 substitutes for savings required under previous law.” Whether or not you accept his approach depends on whether or not you think that Medicare funds should be segregated from the rest of the budget. 

A CBO report in 2009 stated To describe the full amount of HI (Medicare Hospital Insurance) trust fund savings as both improving the governments ability to pay future Medicare benefits and financing new spending outside of Medicare would essentially double-count a large share of those savings and thus overstate the improvement in the governments fiscal position.

The White House response is not that it isn't true; what they are saying is it's okay because it has been done before.   The White House cites a report from the left-leaning Center on Budget and Policy Priorities that says that Republican Congresses engaged in Medicare double-counting with the Balanced Budget Act of 1997 and the Deficit Reduction Act of 2005. And apparently that makes it okay.

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