True North

A blockbuster study by the bureaucracy that manages Medicare and Medicaid threw a deluge of cold water on claims by Barack Obama and Congressional Democrats that $500 billion in cuts to Medicare would improve coverage for seniors.  The Centers for Medicare and Medicaid Services reported that the cuts would likely reduce the number of providers available to seniors, reduce their care options, and create an access crisis.  The only fix that would address that would be to restore much of what Congress has cut — which would wipe out the funding for ObamaCare (via Hot Air reader Geoff A):

A plan to slash more than $500 billion from future Medicare spending — one of the biggest sources of funding for President Obama’s proposed overhaul of the nation’s health-care system — would sharply reduce benefits for some senior citizens and could jeopardize access to care for millions of others, according to a government evaluation released Saturday.

The report, requested by House Republicans, found that Medicare cuts contained in the health package approved by the House on Nov. 7 are likely to prove so costly to hospitals and nursing homes that they could stop taking Medicare altogether.

Congress could intervene to avoid such an outcome, but “so doing would likely result in significantly smaller actual savings” than is currently projected, according to the analysis by the chief actuary for the agency that administers Medicare and Medicaid. That would wipe out a big chunk of the financing for the health-care reform package, which is projected to cost $1.05 trillion over the next decade. …

In the face of greatly increased demand for services, providers are likely to charge higher fees or take patients with better-paying private insurance over Medicaid recipients, “exacerbating existing access problems” in that program, according to the report from Richard S. Foster of the Centers for Medicare and Medicaid Services.

In other words, the warnings about the Canadianization of the American health-care system have proven correct, especially as far as Medicare enrollees are concerned.  We already have a crisis in providers for the government-run network.  Thanks to unrealistic compensation schedules, many providers have stopped taking new Medicare patients, forcing them to fewer providers and into longer waits for care.  The CMMS study shows that the massive cuts proposed by the Pelosi plan in the House and the Reid plan coming to the Senate floor would — not surprisingly — make a bad situation worse.

Politico reports that the bill would actually increase costs, not reduce them as Democrats promised:

Democrats have promised that health reform would reduce health care costs, but legislation the House passed last week would increase costs over the next decade by $289 billion. By 2019, health costs would rise to 21.1 percent of GDP compared to 20.8 under current law, according to an actuarial report prepared by the Centers for Medicare and Medicaid Services. …

In other words, outside of Medicare payment cuts to hospitals, the bill doesn’t curb increasing health care costs. And even the Medicare payment cuts will be difficult to sustain.

We’ve talked before about the difference between price and cost.  CMMS apparently understands that better than Congress.  One does not decrease the costs of providing care by simply capping the price.  All that does is limit the compensation, which means that providers have to either cut services or go out of business.  When producers have to cut back production without a commensurate reduction in demand in conjunction with arbitrary price caps, then the product has to get rationed artificially in order to manage shortages or the producers will go entirely out of business.  That’s as true for health care as it was for gasoline in 1973 and 1979.

Chris Frates picks some highlights from CMMS’ study:

Pg. 3 – “Most of the provisions of H.R. 3962 that were designed, in part, to reduce the rate of growth in health care costs would have a relatively small savings impact.” Translation: Things like wellness and prevention programs and reducing Medicare fraud don’t save much money.

Pg. 8 – The bill reduces Medicare payments to hospitals and nursing homes over time based on productivity targets. The idea is that by paying institutions less money, they will be forced to become more productive. But it’s doubtful that many institutions can hit those targets, which could force them to withdraw from Medicare, the report says.

Pg. 9 – By 2014, Medicare Advantage enrollment would drop 64 percent from 13.2 million to 4.7 million because of less generous benefit packages.

Most interestingly, this particular piece refutes an argument often made by Obama:

Pg. 10 – While many argue that wellness programs decrease costs by preventing expensive-to-treat diseases, they don’t save money. More screenings and preventive care combined with a longer lifespan generally increase costs, the report says.

The CBO said the same thing more than two months ago.  Early detection through screenings and preventive care will reduce treatment for patients who actually catch the diseases for which they get screened — but not overall, as most people don’t ever get those specific diseases.  That’s a fairly obvious point, but one that Obama keeps getting wrong.  That doesn’t make wellness and prevention programs wrong, but they’re not going to save money.  In fact, they’ll make the system even more expensive than it is now.

And finally there’s this:

Pg 16 – “The additional demand for health services could be difficult to meet initially with existing health provider resources and could lead to price increases, cost-shifting, changes in providers’ willingness to treat patients with low-reimbursement health coverage.” Translation: A crush of newly insured patients could be a shock to the system.

Actually, the translation is this: The reforms proposed by the Democrats go in the wrong direction.  Instead of solving for overuse, they have created a system that will make overuse explode, thanks to removing rational pricing signals for consumers.  The problem with the current system is that we have third parties involved in too many health-care provider transactions.  ObamaCare makes that worse, and creates a strong disincentive for providers to boot.

ObamaCare is a disaster for Medicare — and for the country.  Time to throw it out and start over, and focus on removing third parties from all transactions but hospitalization and catastrophic care.

Cross-posted at Hot Air.