Obamacare…we’re going to save what?

The Office of the Actuary for Medicare and Medicaid (OACT) has performed a detailed analysis of  the claim that Obamacare will reduce the percentage of Gross Domestic Product this country spends on medical care.  According to OACT (at page 12), by 2019, we will spend 21.1% of our GDP on health care under Obamacare, versus 20.8% without Obamacare.  So much for that claim.

But, in arriving at that figure, OACT estimates (at page 4) that federal expenditures on health care would  increase by a net total of $406 billion during 2010 -2019.   Digging deeper, we find that this increase is possible only because Congress plans to cut Medicare expenditures by $785 billion from 2010 through 2019.  Should any part of that $785 billion in Medicare “savings” fail to materialize, federal expenditures on health care would increase not by “only” $406 billion, but by as much as $1.1 trillion over the next 10 years.  This, in turn, would obviously increase the percentage of GDP spent on health care to an even higher amount.  So, let’s look at the “savings” to see how realistic they are.

The first component is easy.  OACT (at page 16) assumes that the proposed cuts to Medicare providers scheduled to take effect on January 1, 2010 of $214 billion will actually occur.  They will not.  H.R. 3961 (a similar bill is also pending in the Senate) eliminates those cuts.  Poof, so much for that $214 billion in savings.

Next up on the savings front…$201 billion in cuts to Medicare Advantage programs.  However, these programs have proven to be so popular among seniors that it is any one’s guess as to how long all or most of these cuts will remain in place.

Finally, Congress intends to save an additional $282 billion in payments to Medicare providers as a result of “reducing market basket payment updates” (i.e. increasing the payments to providers less and less frequently regardless of the rate at which costs actually increase).  Here is what OACT (at page 8 ) has to say about these estimated savings:
estimated savings …may be unrealistic…over time a sustained reduction in payment updates…would cause Medicare payment rates to grow more slowly, and in a way that was unrelated to the providers cost of furnishing services…[emphasis supplied]

In other words, over time, the federal government’s payment to providers would bear even less relationship to what it actually costs the provider  than it does today.  The OACT goes on to say:

Thus, providers…could find it difficult to remain profitable and might end their participation in the program (possibly jeopardizing access to care for beneficiaries).  While this policy could be monitored over time to avoid such an outcome, so doing would likely result in significantly smaller actual savings. [emphasis supplied]

I don’t know about you, but to me, Congress’s “assumed” $784 billion in Medicare savings seems far more like a pipe dream than reality, as does any reduction in in the amount of GDP spending on health care.  And, it certainly appears that the OACT agrees with me.