Bipartisan Medicare Reform: Debt and Deficits, All the Way Down

By John R. Graham,

The extremely flawed so-called Medicare “doc fix” has passed. Its direct consequences include increasing federal government control of the practice of medicine and increasing deficits by at least $141 billion through 2025. However, it also has implications far beyond Medicare’s physician fee schedule, to post-Obamacare reform and general governance.

Let’s tackle the fee schedule first. This “doc fix” was promoted as solving the problem that Congress has to increase Medicare’s physician fees at least once a year beyond the rate of growth originally legislated in 1997. If this did not happen, physicians’ fees would drop by about 20 percent, and they would reduce Medicare beneficiaries’ access. This “doc fix” abolishes the 1997 formula in favor of fixed, nominal rates of growth.

As a consequence, the fee schedule is not “fixed” in the sense that it is “solved”. It is “fixed” in the sense that Congress has dictated the total amount that will be paid to physicians in future years. It will go up 0.5 percent per year from 2016 through 2019. Then, the amount freezes, and doctors enter a war of all against all, competing against each other for shares of an amount that will inexorably shrink in inflation-adjusted terms. It gets even more bureaucratized after 2025, but there is no point thinking about that because the whole thing is almost certain to unravel before then.

“Fixing” the fee schedule cannot possibly be the actual goal of the legislation. Even without inflation jumping up unexpectedly, the real value of the fees earned by physicians will drop enough by 2020 that it would be very surprising if they did not curtail appointments for Medicare beneficiaries, resulting in the same crisis we face today. So, the Obamacare coalition which pushed this bill so hard will be back within five years, asking for another hike.

The actual goal of this legislation was to get large bipartisan majorities to vote for an expansion of the Medicare entitlement with no plan to pay for it. So, when the lobbyists do come back for more money in a few years, the precedent will be settled, and there will be little or no resistance to whatever they ask for.

The real shame of this is that federal spending has been below the sequester limits for a couple of years. Indeed, the latest report from the Office of Management and Budget (OMB) reported that legislation enacted in the second session of the 113th Congress resulted in $15 billion of savings to 10-year PAYGO scorecard. Adding the so-called “doc fix” to the PAYGO scorecards would have been a relatively painless way to finance it.

This Congress’ credibility on fiscal issues is seriously jeopardized. House and Senate Republicans are now conferencing on their budget resolutions, hoping to produce a unified resolution that will show how they will govern if given the chance. Which of their documents are we supposed to take seriously: The one which cannot be enacted in to law during this Congress; or the one that they rushed to President Obama’s eager pen, which promises deficits for as far as the eye can see?

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