Archive for March, 2010

PPACA and “What If?” Scenarios

Or, if we have Excel, why can’t journalists and bloggers add and subtract, and do sensitivity analysis? From Dobridge, Hooper, Slok, “Overview of the 2010 Health Reform Bill,” Deutsche Bank Global Economic Perspectives March 31, 2010. [not online] In our view, there are reasons to question whether the costsavings cited in the bill will actually come to fruition. The biggest cost savings in the bill are projected to come from reducing Medicare fee-for-service (FFS) payment rates ($196 billion in savings), and reducing Medicare Advantage payment rates ($136 billion in savings).8 Many of the fee-for service payment reductions assume that scheduled “market basket” payment increases to hospitals, nursing homes, hospices and others will be reduced each year by the rate of multi-factor productivity growth (which has recently been averaging about 1 percent a year). Over time, however, this will open up a considerable gap between the costs of providing care and the reimbursement rates, which will lead to pressure to increase payments. There is precedence for scheduled payment reductions not actually going into effect. Medicare payments to physicians have been scheduled to be cut each year since 2002, but these cuts have only been implemented once. Since 2003, Congress has taken action each year to prevent the cuts from going into effect and Medicare physician payments were scheduled to be cut by 21 percent starting April 1. The Centers for Medicare and Medicaid Services, however, have delayed the cuts by about two weeks in order to give Congress time to reconvene and act. With this precedence, we question whether these new fee-forservice cuts (and the Medicare Advantage cuts) will go into effect entirely as scheduled. The bill also did not implement a fix for the issue of scheduled Medicare physician payment cuts — CBO estimates that raising payment rates 1.2 percent and restructuring the formula for payment cuts will cost $208 billion over the next 10 years. Including this fix, the bill would have increased the deficit. An additional cost issue, but a longer-term one, is that the income cut-offs for the bill’s tax increases are not indexed to inflation. The 0.9 percentage point Medicare tax rate increase and the 3.8 percentage point increase on unearned income applies to individuals making $200,000 a year, or couples making $250,000 a year. As those cut-offs are not indexed to inflation, they will cover a growing share of the population over time—similar to the Alternative Minimum Tax. If, like for the AMT, Congress passes “patches” to prevent to tax increases from reaching more families, the bill will not raise as much revenue as scheduled. While this is not an issue for the 10-year budget window, it could be important for the budget after that point. Point number one is the famous “doc fix”. My observation — this cost would have been incurred even in the absence of PPACA being proposed. So it’s kinda wierd to bring it up as a defect of the bill. The second, “patch”, issue, which the CBO scoring mentions on page 13-14, is where we will have to wait and see. Perhaps the political scientists can forecast what will happen here. But let’s start off the debate by assuming not a single dollar’s worth of revenue enhancement is collected , from “Medicare and Other Medicaid and CHIP Provisions Reductions in Annual Updates to Medicare FFS…

Continue Reading »