Why Bother With Smoke and Mirrors?

When the Congressional Budget Office released its savings estimates on the health reform package, Democrats danced in the aisles. There, finally, was proof that they were not just irresponsible spenders. The comprehensive package was pegged by the CBO as reducing the deficit over the the next 20 years.

Take note, however, where these savings come from. The total deficit reduction of the bill was estimated at $138 billion over 10 years. Of that, about $20 billion was related to changes in how educational loans are written and administered. The health reform provisions accounted for about $118 billion over 10 years.

A review of the line-by-line analysis points out a few overall weaknesses in the plan. For one, most of the provisions are either budget neutral or add to spending. Only a few lines contribute to a reduction, and of those few lines only a few are large numbers. This concentrates the "savings" in a few very specific areas while spreading the "spending" out across dozens of provisions. What that means is that if only one of the "savings" lines fails to come out as predicted, it could throw off the whole calculation.

For example, COB predicts a deficit decrease of $132 billion from decreases in "Medicare Advantage Payments." If only this one line fails of its purpose, then all of the alleged savings to be accomplished under this reform bill are obliterated.

Another line predicts $156.6 billion in savings from "Revision of Certain Market Basket Updates and Incorporation of services Productivity Improvements into Market Basket Updates that do not Already Incorporate Such Improvements." Is that not clear? The lawfirm Arent Fox provides some elucidation: "[This section] incorporates a productivity adjustment into the market basket update for inpatient hospitals, home health providers, hospice providers, inpatient psychiatric facilities, long-term care hospitals, and inpatients rehabilitation facilities. The beginning of the productivity adjustment varies, depending on provider type. The provision provides additional market basket reductions for certain providers, and incorporates a productivity adjustment into payment updates for Part B providers who do not already have such an adjustment." So $156 billion in the "savings" rests upon reducing the amount paid to Medicare providers using some kind of complex formula.

Now if that sounds a little familiar, it should. In 1997 Congress hatched a scheme to reduce the amount paid to Medicare physicians using some kind of complex formula. But when the formula kicked in, the AMA screamed bloody murder, and . . . yep, you guessed it, the cut didn't happen because Congress acted to put it off. Didn't happen in '98, '99, '00, '01, '02, '03, '04, '05, '06, '07, '08, '09, and if the Democrat leadership has their way, it won't happen in 2010 either. What's the price tag for the "doc fix" legislation? For the short term proposals, it's either $9 billion or $18 billion depending on whom you ask and which version is being discussed. Either way, it's far less than the $156 billion that the "productivity adjustment" is supposed to squeeze out of Medicare to pay for health reform.

So if Congress doesn't have the stomach to reduce Medicare spending by 18 billion, how likely to you think it is that the $156 billion cut is ever going to materialize?

In my opinion, not a bit likely at all.

Now if you factor out just that one line, the net savings of the health reform bill are gone and the whole thing is in the red by $38 billion. And that's assuming the expense side isn't underestimated by 40% like Medicare Part D was. By the way, the long-term "fix" for the Medicare physician payment "problem" is estimated at over $200 billion - - or, 1.8 times the total estimated health care savings under the reform bill.

When Congress was considering the North Atlantic Free Trade Agreement (NAFTA) in 1992, Presidential candidate Ross Perot used the phrase "a giant sucking sound" to describe the noise made by US jobs heading south for Mexico should NAFTA go into effect. (Which it did, and which they did.)

If you listen carefully right now, you will hear a "giant flushing sound" and that is the sound of the US economy going down the drain under the crushing weight of the total health care spend. The stimulus bill might give us a temporary bump, but most agree that over a long term arc the amount of resources we direct to paying for simple health care is astounding and unsustainable.

Although touted as a deficit reducer, health reform is a big fat spending bill whose net savings are based on a few huge cuts which Congress knows damn good and well are never going to happen.