The recent boost to Medicare

by on April 2, 2013 at 2:25 pm in Current Affairs, Medicine | Permalink

This was an under-reported story which I missed at first.  Sarah Kliff reports:

…the Obama administration reversed a proposed 2.3 percent pay cut for private Medicare plans, replacing it with a 3.3 percent raise.

For health plans, this was a huge victory. As Citi analyst Carl McDonald put it in a Tuesday note to investors, this was “Armageddon averted.”

“The rate adjustment,” McDonald continues, “sends a pretty clear message that CMS has no interest in seeing major disruption in the Medicare Advantage program right now, quieting concerns about a post election desire to rein in enrollment and margins.”

Medicare Advantage plans will still get a tiny haircut due to other changes the federal government proposed. The 2.3 percent pay cut that became a 3.3 percent raise was one among a few cuts that the Obama administration had proposed for 2014.

Cuts to Medicare Advantage plans mandated in the Affordable Care Act, for example, will still go forward.

Overall though, the cuts are way smaller than what the Obama administration initially proposed. McDonald at Citi estimates that Medicare Advantage plans will see a 2 percent rate reduction, compared to 7 percent to 8 percent that analysts predicted with the initial rates.

Here is more.  This is but a single data point, but I take it as further evidence that fiscal consolidation cannot easily be done on a dime.  In fact it cannot easily be done at all, especially in the United States.  Here is my earlier post “Why are budget issues urgent now?”.  You will note that Medicare Advantage is a program considered especially irksome, and especially costly, by many commentators on the left.

Ray Lopez April 2, 2013 at 2:46 pm

We’re forked. Indeed as Medicare, Social Security are 40% of the budget, and defense another 20%, with safety net and interest being 20%, that leaves 20% for worthy stuff. So out of every five dollars you send to DC, only one goes into something worthy. I don’t consider paying for other countries defense worthy, but if you do, still that leaves 6 out of 10 dollars sent to DC on or before April 15 as unworthy expenditures. See more here: http://bit.ly/PZufjr (breakdown of US Fed budget)

Andrew' April 2, 2013 at 3:09 pm

And by “worthy” you mean things like doing IP exactly bass ackwards. If I wanted to create an invention it would cost me $10,000+, a prohibitive amount that it likely wouldn’t cost a patent troll who can leverage their scale against small inventors.

Ray Lopez April 2, 2013 at 4:11 pm

Hey Andrew’, thread change dude. When I first started reading your posts, I thought of you as a college professor. Now I’m getting the picture of a crusty old solo inventor who has a perpetual motion machine and The Man is keeping him from makin’ mo’ money! :)

Andrew' April 2, 2013 at 4:13 pm

Hey man, this is your hobby horse I’m trying to beat some life into!

Andrew' April 2, 2013 at 4:43 pm

If I were a professor I’d be too busy writing grants and having pictures of myself appearing thoughtful in a lab coat staged ;)

TheAJ April 2, 2013 at 10:51 pm

That’s a huge portion tax revenue going straight into the pockets of conservatives and other various right-wingers. Its amazing the way they are able to seize upon the taker class mentality while still ensuring they get as many handsome rewards as possible. In a way you really have to applaud them.

Andrew' April 3, 2013 at 5:53 am

When did all old people become suddenly become conservatives? I missed this. It had always been that old people tended Democrat BECAUSE they supported these transfer programs. I suspect the shift occurred when the government got into financial trouble and the Democrats rallied around their precious and decided who they could cast overboard.

Andrew M April 3, 2013 at 10:13 am

I’m not sure about what you’re claiming. Are you saying that the elderly DON’T tend to vote conservative? Or are you saying that they do tend to vote conservative and then making a claim about why they currently do?

TheAJ April 3, 2013 at 5:16 pm

When did all old people become suddenly become conservatives? I missed this. It had always been that old people tended Democrat BECAUSE they supported these transfer programs

When the greatest generation started dying off. And got replaced with the “Government spending is evil, hands off MY (read, “yours” is still up in the air) medicare, social security, benefits. Anyways, that was a dumb question, and the answer is pretty easy to find in polling data.

Anyways, I love your rection though:

Statement : Social Security, Medicare, Military are unworthy.
TheAJ: So in other words, conservatives are the main beneficiaries of this supposedly worthless spending.
Andrew Prime – THATS SO OUTRAGEOUS AJ. And old people aren’t conservatives. Of course they’re conservatives, its the democrats’ fault.

Hopaulius April 2, 2013 at 3:40 pm

It’s fascinating what the left considers irksome and expensive. Yglesias yesterday asserted that helicopter money, though illegal, is both desirable and free. http://www.slate.com/articles/business/moneybox/2013/04/helicopter_money_federal_reserve_should_print_money_and_give_it_directly.html

derek April 2, 2013 at 3:47 pm

But that isn’t real money, made by someone doing something productive, so it doesn’t matter. Same with the medicare spending described above.

The epitome of fragile is a system which the only limit is collapse. We have one right here.

JWatts April 2, 2013 at 3:52 pm

From the article:

We should do something much simpler: print up a bunch of money and send it to American households. …
Compared to fiscal stimulus plans, this has many advantages. One is that it makes the budget deficit go down rather than up. Tax revenues will rise as economic activity speeds up,

That looks a lot like support for the Laffer Curve.

Errorr April 3, 2013 at 8:53 am

Even liberals understand the Laffer Curve and admit there is a point where raising taxes will reduce revenue. The argument is over where the inflection point is, 40% or 70% etc… Yglesias is arguing that deficit financed tax cuts would be beneficial during an AD shortfall, he would prefer if the FED had the legal ability to do it itself and the political will to do so.

JWatts April 3, 2013 at 10:26 am

Even liberals understand the Laffer Curve and admit there is a point where raising taxes will reduce revenue.

I’ve seen liberals that have ridiculed the very idea of the Laffer Curve.

mulp April 2, 2013 at 4:05 pm

The reason for the reversal is the Republican Medicare cost control measure from the 90s has been kicked down the road again this year, and Obama is assuming the Republicans will want desperately to kick SGR down the road again for 2014 with yet another doc fix.

Medicare Advantage (MA) rates are set relative to Medicare actual costs which would be substantially lower if the Republican SGR were to actually take effect.

Of course, MA was supposed to result in lower overall healthcare costs through market innovation, which is the reason for MA being Medicare-Plus with subsidies to get more insurers to offer MA plans. Medicare-Plus didn’t get much support because customers wondered why they would pay more for rationed Medicare – insurers would “innovate” to generate profits which patients knew meant rationing.

And of course, all this leads to attacks on the Republican health reform plan from the 90s signed into law finally by Obama.

Who was it that said Americans make all the wrong decisions until they finally do what the British did? Time to pick from a national plan that works better: Canada, France, Germany, Japan, Israel,… Cheaper and overall better results for everyone.

And before arguing that those nations have rationing, start by comparing the working poor in the US who make too much for Medicaid but don’t get employer benefits and make way too little to buy insurance that actually covers major medical for a parent with a health problem. Why do you support picking out 25% of the US population to have steep rationing of health care while paying 50% more than the per person costs of the EU with a similar population size and diversity for 100% of the population just to give improved care to 75% of the population?

John Thacker April 2, 2013 at 4:32 pm

I remain confused about your complaints about the US not having a national health care plan. They don’t make sense in the context of Medicare spending.

Note that many of the countries that you name, such as France, have a health care system closer to that of Medicare Advantage, with multiple individual large insurers that negotiate with the government over rates each year.

There is, no doubt, a more complicated argument about how Medicare costs cannot possibly be cut until everyone else is on a similar system.

Dismalist April 2, 2013 at 6:54 pm

Mulp’s last paragraph is essentially correct. For most people in the US, there is not sufficiently tight rationing of medical procedures. Except that it ain’t improved care for 75% of the population, it’s just lot’s of care or lots of input. Careful about alternatives: UK may ration too tightly, France and Germany look very roughly right. Of the 16% of GDP the US spends on health care, about 5%-6% are thrown out the window. How would you like six per cent higher income than otherwise, forever?

Andrew' April 3, 2013 at 6:25 am

Let’s set up a program where we just cut checks if people ask for it as long as they call it medical care. Solve for the equilibrium, as they say.

Andrew' April 3, 2013 at 6:41 am

Here is what I think should be the null hypothesis: Our GDP per capita is >20% higher than Germany. 20%!!!!! Germany!!!!!!! So, what would be our human capital adjusted GDP per capita advantage apples-to-apples. It is literally incredible. So, I suspect that our doctors and medical technologists have a much higher opportunity cost than their doctors. Think Cuba. How would you like 20% lower GDP forever? I’m not saying that is all of it, but it is some of it. What actually explains the assumption that everything should be the exact same cost per GDP for every country?

John Thacker April 2, 2013 at 4:36 pm

Quite a few proposed cuts and revenue sources for PPACA have been attacked:
1) The poorly thought out 1099 requirement
2) The ticking time bomb of the CLASS Act (revenue increasing for the ten years of the budget window, exploding after that.)
3) The Cadillac health plan tax has been postponed by a couple of years, partially because many union negotiated plans would fall into that category
4) The original Medicare Advantage cuts were nullified with a “pilot program” measuring “quality” that actually gave bonuses to every single MA provider.
5) The Senate recently voted 4:1 against the medical device tax

mulp April 2, 2013 at 5:43 pm

Who needs CLASS when Medicaid pays for the same thing and 50% comes out of State and local taxes and 50% comes out of Federal borrowing?

careless April 2, 2013 at 11:53 pm

The people who needed the bill to not enlarge the deficit three years ago.

Andrew' April 3, 2013 at 5:54 am

“The Class Act?!?,” yet another example of how the government manages to create laws named the exact opposite of their true nature!

Brian Donohue April 2, 2013 at 5:09 pm

‘fiscal consolidation’. Dude, you should breathe the air outside the beltway more often. Both the term, and the idea that it is difficult/impossible, are much more widespread within the imperial capital.

mulp April 2, 2013 at 5:40 pm

“You will note that Medicare Advantage is a program considered especially irksome, and especially costly, by many commentators on the left.”

Well, the basic premise of Medicare Advantage is the private sector is more flexible and innovative than government and thus will be able to drive down healthcare costs while delivering superior benefits to the poorly run and bloated and fraud ridden Medicare which for political reasons is fragmented into four parts delivered independently: Part A, Part B, Part D, and private supplemental plans, clearly adding inefficiency.

That was actually the reasoning for Medicare+Choice (Part C) from the same health reform in the 90s which gave us the SGR. The problem is insurers found they had to either ration more than Medicare, or charge more than the sum of Part A+B+private supplemental premiums in a single Part C premium.

So, in 2003, the private sector solution that is able to operate cheaper than bloated wasteful government got paid more than it costs the government to do the same things that government does too expensively.

Why we can save money on public safety by hiking property taxes and privatizing the police and fire and paying the private sector more than government spends!!

We can save money by hiking taxes to privatize the military to fight our wars and pay the private corporations more.

Of course, when the latter two have been done, the police, fire, and soldier don’t get long term benefits so the private sector can bid less, but now the costs of disabled and old workers fall on the government welfare system, not on the government department.

Just more privatize profits, socialize liabilities. Who on the right supports that?

If the right were to simply say the individuals who suffer the consequences of the private sector and fall on the public can be auctioned off to the private sector like abandoned cars and the private sector is free to scrap and chop up the needy like cars and sell the body parts for a profit just as they do with abandoned cars, I would have a lot more respect for them. I wouldn’t agree, but I would respect the honesty.

The Anti-Gnostic April 2, 2013 at 10:35 pm

Life is hard. Have kids, join a church, mosque or temple, make lots of friends and keep in touch with extended family.

Bob April 2, 2013 at 5:52 pm

I believe that one reason that the Left finds Medicare Advantage irksome is that it appears to cost more than conventional Medicare. I believe that a 3.3% increase is higher than the increase in overall Medicare costs last year. I thought last week that overall health care costs rose 2.5% last year (sorry, no time to look it up).

So at a time when the left is being lectured about the need to cut entitlements a program is being pursued that to date has proven less efficient than old fashioned single payer Medicare. The supporters of Medicare Advantage keep talking about the waves of innovation that will drive down costs but they have not happened.

And in my self appointed role as the spokesman for the left I think they feel that a move to Medicare Advantage type plans as proposed by Ryan and supported by House republicans as methods for the government to to push rationing decisions onto the private insurance companies.

Ian Maitland April 2, 2013 at 7:31 pm

Aren’t you missing Tyler’s point?

He wrote that “the Obama administration reversed a proposed 2.3 percent pay cut for private Medicare plans, replacing it with a 3.3 percent raise.”

The left can’t even cut programs it finds “irksome”.

Andrew' April 3, 2013 at 7:01 am

“The private plans are required to offer a benefit “package” that is at least as good as Medicare’s and cover everything Medicare covers”
“Many plans use the excess subsidies to offer hearing coverage, vision coverage, gym memberships and other services not covered by Medicare.”

So, quit requiring it covers everything medicare does, and quit adding subsidies on top.

Floccina April 5, 2013 at 2:11 pm

They will not significantly reduce spending until people stop lending money to them.

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