Healthcare Providers Will Suffer If We Can't Fix Medicare

The growth in the federal deficit is shrinking, but will begin to creep up again as the Baby Boom generation begins collecting Medicare and Social Security.

So projects the Economist, which believes the United States needs to tackle the budget deficit by going after entitlement programs, especially the triumvirate of Medicare/Medicaid/Social Security.

“The hard truth is that an aging population and rising health costs are inexorably pushing up the cost of Social Security (pensions), Medicare (health care for the elderly), Medicaid (health care for the poor) and the subsidies in Obamacare,” according to an unbylined article in the latest issue. “The total cost of these entitlements will rise from 9.8 percent of GDP this year to 11.6 percent by 2023 and 13.6 percent in 2035, which would push the deficit sharply higher.”

The Economist lays out a four-point plan, that probably was easy to write, but far more difficult to implement, namely:

• No steep cuts in the next five years. The recovery is fragile enough as it is. And you can’t spring big changes on people who are about to retire.
• Any reforms should boost the economy’s supply side. Millions of working-age Americans have left the labour force, sapping the country’s economic potential. Most have quit because they cannot find jobs; but too many entitlements give them an incentive to leave.
• The rich should bear the lion’s share of the adjustment, simply because their incomes have grown so much faster than the average in recent decades.
• Don’t be deterred by the political difficulty. Democrats don’t want to touch benefits, and the only thing Republicans hate more than higher taxes is Obamacare. But action is necessary.

From a political viewpoint, the first is easy, the other three impossible. To suggest that the deficit can be reduced by cutting entitlements so that those who contribute to the health of the economy will not be incentivized to retire, by taxing the rich and cutting their entitlements, and by expecting Democrats to agree to cut entitlements and Republicans to suddenly agree to tax increases, is outwardly insurmountable.

So why is this article worth your precious time? Because it describes what will happen if we as a nation fail to take action: The federal government will continue to cut the only place it can with the fewest political consequences, and that’s on health providers.

The article’s authors also identified what should be Public Enemy Number One for healthcare providers in the Patient Protection and Affordable Care Act, and what we should do it. The article recommends:

Scuttle the Independent Payment Advisory Board (IPAB), Obamacare’s main backstop for spending. The law requires the board, from 2015, to propose cuts to keep Medicare growth below the average of general inflation and health inflation. From 2020 it must be lower still. Critics say this unelected body has too much power. We think it has too little.

IPAB may not propose changes that raise costs or reduce services for Medicare recipients. This makes hospitals the most likely target for cuts. Obamacare has already capped growth in Medicare’s fees to hospitals and similar places. Medicare’s trustees worry that this is not sustainable over the long term, since Medicare would end up paying far less than private insurers for the same service. Providers would either have to stop accepting Medicare, or go out of business.