For those of you who haven't been following along at home, the Sustainable Growth Rate was a cost-cutting measure enacted as part of the Balanced Budget Act of 1997. Not to bore you with unnecessary details, it tied the growth in physician reimbursement payments to GDP growth. This worked for a few years, because we had unusually low cost inflation, and unusually high GDP growth. Then those trends reversed, and physicians screamed bloody murder. Starting early this decade, Congress has annually enacted a temporary fix that either holds physician reimbursements steady, or raises them slightly, rather than cutting them as the law demands. Over the years, compound growth means that getting back to the SGR mandated trendline would require massive cuts in reimbursement rates: 21% this year, and according to the CBO, approximately 2% every year thereafter.
Permanent fixes were originally part of the House bill. The problem is, those fixes are, as you can imagine, very, very expensive. They made the bill cost more than $900 billion, and also, not be so deficit neutral. So they took it out and enacted it separately, without any financing measures.
Paul Ryan asked the CBO the natural question: "So what would these bills look like if they were enacted together?" The answer, according to the CBO, is that together they'd increase the deficit by $89 billion over ten years. And those increases would be back loaded: by 2019, they'd be pushing the deficit upward by $23 billion a year. The House health care bill makes the physician reimbursement fix somewhat cheaper. But the physician reimbursement bill makes the house health care bill cost slightly more--which is to say, if it were already law, the estimate of deficit reduction would be about $3 billion lower over the next ten years.
Defenders of the decision to split the bills argue that there's no particular reason that the Medicare physician fix should be tied to the health care bill. I see what they're saying, but I think that's wrong, for a few reasons.
- The provisions of the bills interact; passing them in parallel skews the cost estimates
- Passing the physician reimbursement is the price of AMA support for the bill, which is why they were originally bundled together. The bills have to be passed in parallel--if they don't do the one, they probably can't pass the other. That argues for making them into one bill.
- Failing to pass the cuts would devastate Medicare's GP provider network as physicians pulled out, making it hard to do the cost cuts in other areas.
- Splitting them leaves the physician fix with no financing mechanism.
I suppose you could argue that there's no chance that we're ever going to reduce those reimbursements, so passing the new healthcare bill doesn't actually increase the deficit from what it otherwise would be. Only then you have to explain why we should believe that similarly structured payment cuts will work with all the other providers. Because if Congress cannot, in fact, stick to its guns and allow mandated cost cuts to stand, then the health care bill isn't deficit neutral, is it?
In the years since 1997, only once has Congress had the guts to apply the SGR formula, so I think one of your closing points is germane: "there's no chance that we're going to reduce those reimbursements, so passing the new healthcare bill doesn't actually increase the deficit from what it otherwise would be". Is not the difference between the SGR cuts and the healthcare reform cuts that the healthcare reform cuts have not been imposed on providers (as SGR was) but agreed to in advance by the industry groups that represent the providers? I think that is a major difference, but I also am not naive enough to think that there are not a lot of ways for providers to wiggle around the deals they have already cut in the name of reform. Will Congress hold them to it? Not sure. But this is an argument for IMAC.
The BBA was the product of a lobbying effort every bit as intense as this bill. The physicians weren't excessively worried about the cost cuts, because for a while, they actually delivered comfortable increases. Then oops, when they didn't, they got them repealed. Or so I understand it.
True. At the time of the passage of the BBA, we were in a very unique healthcare environment...low single digit to actually zero increase in costs due to the squeezes of managed care. This lasted through the late 1990s. So while the docs did not like a formula, it initially looked like it would work. Then managed care relaxed, healthcare inflation took off again, and the formula was an issue. So any actual cut dictated under SGR was made only once (2001 I think but don't hold me to that).
It's all a game at this point. They'll say whatever they need to say and do whatever they need to do to get this passed. There's a reason a lot of this doesn't actually implement till 2013: That way once some structure is in place, they'll have 3 years to shake down all the interest groups to negotiate what health care reform will really look like. Hint: the more money you give to the right senators and representatives, the less likely you'll be demagogued as one of the bad guys who needs to be cut. This thing about Medicare reimbursements is just the first of many of these battles we'll be seeing over the next few years.
Yep, its a recipe for maximizing campaign contributions.
But just wait. The real fun starts when every niche industry starts lobbying to have their services made into a national mandate.
Megan means?
'Congress is a pushover; and there is no point in Congress saying it isn't unless and until it is not.'
I saw a chart on Duncan's Economic Blog the other day suggesting that
most all of the rise in US Personal Consumption Expenditure since 1965 has been a rise in healthcare spending. Megan's piece makes that more and more plausible.
Good post Megan. What's the point of passing a Balanced Budget Act that forces tough actions in times of poor economic periods if you have the right to waive them? The AMA sold out the longterm future of their membership (as did the AARP) by supporting this healthcare bill in exchange for a shortterm kickback. Sen Mary Landrieu of Louisiana is selling out the longterm future of her country in order to get a $100M kickback to her state (see http://blogs.abcnews.com/thenote/2009/11/the-100-million-health-care-vote.html).
One more thing -- I believe the CBO scored the bill based on the cost to the Fed Govt. It does nothing to score the cost to the states of unfunded mandates requiring them to allow millions of more people into their Medicaid programs.
Another thought -- The Govt has historically done a pi$$ poor job of estimating the cost of major entitlement programs (see Soc Security, Medicare, and more recently the Medicare drug benefit). All of these kickbacks, fixes and armtwisting to get this new healthcare reform bill to "revenue neutral", and yet you can be certain that the cost was underestimated by at least a factor of two.
Nonsense. Senator Landrieu is taking a heroic stance that will result in better health, and in a significant improvement in the quality of life and economic security for millions of Americans. Her neighbors in Louisiana will benefit more than most, as her state suffers from one of the highest non-insured rates in the union.
The $100 million earmark will also benefit Louisianians, of course, but its main purpose is to give this brave Senator some political ammunition ("I bring home the bacon!") against the forces of reaction that will try to hurt her politically for doing the right thing.
Oh, and AP just texted me: Blanche Lincoln's on board.
this problem, of course, is the entire problem with government-controlled medicine. while it is true that the SGR bill does not really impact the cost of the health care bill, but it does point out that congress does not have the tummy to reduce costs. even when they pass a law to cut costs, they simply repeal it annually. i wonder why the public is cynical about our "leaders."
Only the delusional actually believe the cuts in the bill will actually materialize. Gbarto is correct, it is all a game to get the thing done, truth be damned and doubly damned.
As I have posted before, the Dems are missing the boat. What they should do is adjust the doc fix so that it increases medicare payments by an extra 500 billion per year. Then they could take that money back in the health care bill. Result: The health care bill reduces the deficit by 5 trillion over ten years!
But as I see it, they're passing a bill that increases the deficit by $200 billion in order to pass another bill that hopefully reduces it, but by substantially less than $200 billion. That means that passage of this bill is going to increase the deficit.
Welcome to three-card monte, Washington-style.
Megan,
Flawed logic.
Your arguments that the reimbursement correction will be passed are not contingent on the healthcare bill being passed. Instead you argue it is inevitable. So we can take it as given that the reimbursement happens, we'll assign it a cost of $x, if the healthcare bill costs -$y. Then the world where we pass the healthcare bill has a cost of x-y, and the world where we don't have a cost of x. Thus |y| > 0 and |x| > 0 => x-y
Thus from a budget perspective we would be better off passing healthcare.
Now comes the part where you tell me that they are actually linked despite the fact that they passed the reimbursement correction for the last 10 years when health care wasn't even on the table.
We could use the same logic to link the defense bill: You know that congress can't seem to control increases in their defense allocation? That costs 6 trillion dollars over 10 years. Clearly we can't pass any defense spending until bill until congress makes it deficit neutral over 10 years and learns to control growth.
If your motives were more about budget consequences than they are about conservative ethics you would focus on the bigger fish.
So you agree that Congress cannot meaningfully commit to reduce the deficit through significant provider payment cuts--that this is so unlikely that we should assign a probability of zero to this? And that hte CBO's scoring of the budget as if those cuts will happen, should not be in any way taken to imply that there is a significant probability that these cuts will happen? Is that what you want to say?
I don't presume to answer for zosima, but personally, I would agree that Congress cannot significantly cut provider payments in 2009 -- at least if we're talking about doctors. I think they're likely to have better success with hospitals. I think overpayment to Medicare advantage insurers are politically feasible, too. The fact that the AMA successfully shields its members from pain doesn't mean everybody else will be as successful, nor does it mean the AMA itself will be as successful indefinitely. If you can't get 99% of the cuts you want, go for 75% (or what have you).
A lot of the (obviously disingenuous) criticism of HCR attacks it for failing to be introduced in a political environment where all the stars are aligned with perfection. Problem is such a time will never come. Which is the point of the criticism.
I would say that I do think that congress probably won't stick to the sustainable growth rates. But I think you are the one generalizing to all other legislation, not me.
The SGR that the Republicans crafted was a terrible piece of legislation. Its rates were unrealistic even if you have assumed the economy was going to stay in a bubble. Of course it didn't, so they went from bad to worse. It is unfortunate that they don't just get rid of it entirely, but the fact that congress continues to roll back the SGR doesn't imply that they won't stick with something more modest.
The original SGR was calling for cuts on the order of 5% a year. That is huge! Moreover, it is far in excess of what would be required for budget stability.
Also, the idea that the SGR is just a binary is not really a clear picture of how congress has actually modified the SGR. Some years they've included no adjustment, some years they've decreased rates, and some years they've increased them.
You are saying "Congress didn't meet an impossible target. Gotcha! Now I've shown Congress is incapable of meeting any targets!" Clearly this doesn't make any sense. The productivity enhancements required under the proposed healthcare legislation are much more modest; on the order of 1% a year.
The other point that you seemed to miss, is that the budget projections indicate that regardless of what we do on SGR, we should still pass healthcare. As negative small $$$ is better than negative big $$$ .
P.S.
Again, you assign a probability to a possibility with no justification other than your gut. Today I'm concerned with the merits of the proposed legislation, tomorrow I'll worry about tomorrow's legislation. If you want to talk about "significant" future "probabilities" you're going to have to get minimally quantitative.
There is a chance I'll be robbed, catch swine flu, or get hit by a meteorite if I walk outside. I still walk outside because those probabilities are not small. Your intuition is not evidence that the probabilities are not small.
Color me skeptical, Megan. I suspect you think it's "wrong" for one reason, really, and that reason is you oppose using government power to guarantee robust health insurance for all citizens, as other rich democracies do, and you're savvy enough to realize a split makes political sense, and increases the likelihood an HCR bill makes it to Obama's desk.
Why? Unless the content of either changes, why would there be any substantive difference? Maybe what you're referring to is removal of the financing provision of the SGR repeal. But that has nothing to do with whether or not the two bills are consolidated.
No it doesn't. Quite the contrary. Passing them separately improves the political calculus. Melding them makes sense only if you don't want HCR to be enacted. Oops, wait a minute...
Don't follow you here at all. Don't you mean "Successfully passing the cuts would devastate Medicare's GP provider..."? Seems to me this an argument supporting repeal of SGR -- not an argument about whether this repeal should or shouldn't be part of the HCR bill.
No, not really. "Splitting them" is not what removes the financing mechanism. Removing the financing mechanism is what removes the financing mechanism. A financing mechanism obviously could be part of the SGR repeal bill if Democrats wanted to keep it in.
The netnet is the House's move makes national healthcare more likely, politically speaking. I'm fine with that.
Megan, can you help me understand why the AMA would see the SGR fix as a big enough concession that they would go along with health care reform?
After all, if "everyone knows" that SGR was a sham, what's the difference whether it's a repealed sham or an unrepealed sham?
And this same logic obviously bears on your contention that the codified cuts to Medicare etc. in the currently considered bills are sham cuts.
The fact that SGR was seen as a bargaining chip seems to indicate that codified cost-reduction measures mean (or at least, can mean) something nontrivial.
Am i missing something here
in the article, he talks about an additional 89 billion added to the deficit over ten years
bfd (big F*** deal)
we have what - a 3 trillion dollar gov't budget ? 9 billion a year isn't even round off error, and it had got to be much less then the uncertaintly in all of these numbers.