Tuesday, February 5, 2008

Bush Budget Dead On Arrival But It Underscores the Trouble With Entitlements and The Choices That Must Be Made

President Bush is calling for $560 billion in cuts from Medicare over the next decade.

He would make these cuts by reducing the payments doctors and hospitals would have received.

What is amazing about the Bush budget numbers is that the administration is only trying to cut Medicare's annual growth rate from 7% to 5%. At one level, that ought to be easy. After all we aren't talking about reductions in existing payments--just limiting the increase to 5% instead of 7%.

What's a couple of points? In Medicare it is life and death to the bottom line.

Just that two point adjustment will create an incredible political fight in Washington, DC among the health care special interests.

Bush has made a choice here--cut the hospitals and the docs and leave the health insurance company payments for private Medicare programs worth $150 billion over ten years intact.

The Congressional Budget Office (CBO) has said that Medicare's payments to the private HMOs are 13% greater than the traditional government-run Medicare plan gets for the same seniors--the difference is 17% of the Private Fee-For-Service (PFFS) version of the program.

The hospitals and the doctors can be expected to argue that the guys getting the over payments (the insurers) are the ones that need to be on the chopping block. After all, they argue, if private Medicare plans are supposed to be the way to use the market to make Medicare more efficient, why do they need more money? Shouldn't they need less money?

Meantime, the Medicare physicians are already facing an automatic 10% fee cut on July 1 and another 5% cut on January 1. Hospitals regularly point to their Medicare payments as loss leaders needing to be offset by higher private insurance payments.

The Bush budget may be dead on arrival in his "lame duck" year but it does point out the challenges and the choices.

This President has said he will veto any cuts to the private Medicare programs and certainly proved he would in last December's budget battle.

But this President has less than a year to go. The Congress can just keep the budget debate going past inauguration day and look forward to a new President--Democrat or Republican--that they hope is more willing to deal.

The problem is we don't so much need another deal as we need a fundamental restructuring of Medicare if we are going to keep the program solvent in the coming years. The way the program pays providers--hospitals, doctors, insurers, and everyone else--it is not sustainable.

It is the sustainability of Medicare that policymakers need to focus on--not who wins the next battle at the trough.
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