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Lo and Behold, a New Romney-Ryan Distortion on Medicare

Can Mitt Romney, Paul Ryan, and their supporters go more than one day without thinking up a new way to distort the debate over Medicare? I’m starting to wonder.

In the last few days, they’ve seized on a new argument—that Obamacare will cause 15 percent of hospitals to become unprofitable. It’s yet more proof, they say, that Obama has “raided” Medicare to pay for the Affordable Care Act’s coverage expansion. Or, to put as the Republicans do when they are speaking to white elderly voters, it shows that Obama took your hard-earned money and gave it to somebody else.

As usual, the Republican claim begins with a real fact. The Affordable Care Act really does reduce Medicare spending by more than $700 billion over the next ten years. And while some of those cuts represent efforts to reduce overpayments to private insurers in the Medicare Advantage program, some of those cuts represent reductions in what hospitals will make for taking care of Medicare patients.

An independent analysis of the Affordable Care Act suggested that some hospitals might not be able to adapt these reductions—and that, as a result, 15 percent would become unprofitable. If that happens, they might stop seeing as many Medicare patients, forcing seniors to wait longer for care. Or Congress might decide to ease up on the cuts, cause the law's total cost to rise.

The analysis comes from Richard Foster, Medicare’s chief actuary. He is smart and honest, so you should take what he says seriously. But plenty of smart and honest analysts take a different view.

They point out that the Affordable Care Act doesn’t simply make crude, across-the-board payment reductions—as, say, the Balanced Budget Act of 1997 did. Instead, Obamacare also introduces incentives designed to reward efficiency. In addition, the Affordable Care Act’s expansion of coverage—remember, it will mean 30 million additional Americans have insurance—should reduce the number of uninsured people showing up at the emergency room, easing the charity care burden on hospitals.

Keep in mind that the hospital industry endorsed the Affordable Care Act. If it had thought the cuts were too steep, rest assured, it would have howled. And the hospitals may already be adapting, if early indications are correct.

To be clear, Foster could be right that hospitals will struggle. But would 15 percent of hospitals losing money be a disaster? In most industries, it wouldn’t be. (If there’s a line of business where 85 percent of companies break even or make a profit, year after year, please let me know. I’d like to invest.)

Health care isn’t just any other business and Foster, quite appropriately, worries that these providers might reduce services in ways that affect beneficiaries adversely. But some hospitals probably should become unprofitable, because they offer redundant services that drive up the cost of care. And conservatives should know this as well as anybody, because their entire theory of Medicare reform is that cutthroat competition among providers will produce a more efficient health care system. In cutthroat competition, there are always losers.

Which leads us to the real problem with conservatives making this argument. Let’s suppose Foster is right that 15 percent of providers will start losing money and that, as a result, seniors will have more trouble getting care. The same thing would happen under the conservative plans, because they cut just as much money, if not more, from Medicare.

Remember, Ryan’s budget cuts the same $700 billion from Medicare in the first ten years. Romney has said he would restore those cuts but, as discussed here previously, it’d be virtually impossible to do that while staying within the spending cap he’s proposed. And that’s just the first ten years. In the future, Ryan and Romney would cut Medicare by as much, and probably more, than even Obama’s latest budget proposal would. That's because the Ryan and Romney approaches would strictly limit the value of the voucher seniors could use to buy insurance coverage, while the Affordable Care Act merely sets spending targets. (The law empowers a commission, the Independent Payment Advisory Board, to recommend cuts that would reduce program spending whenever it exceeds the target, but the program could still grow at a faster rate.)

Just so you don't think I'm making up this stuff, here’s Len Nichols, a well-known health economist and director for George Mason University’s Center for Health Policy Research and Ethics:

Rick Foster’s non-partisan analysis was that 15% of hospitals could not withstand the spending reduction targets of the ACA as they go into effect in 2018 and beyond. It then follows, as the night the day, that they, and probably more hospitals, could not withstand the significantly tighter expenditure controls of the Ryan Budget.
The ACA creates tools for hospitals and physicians to get rewarded if they lower cost and raise quality efficiently. And the ACA’s targets are TARGETS, if something isn’t going according to plan down the road, the IPAB and Congress have the power to make mid course corrections, and thereby protect providers or beneficiaries with relief if the political judgment at the time warrants.
The problem with the Ryan Budget, from a health policy perspective, is that it locks federal spending into a fixed growth rate and thereby shifts all risks to beneficiaries, providers, and plans, with no tools to solve the problem, which all would like to solve today if they could. They can’t, which is why they need the ACA’s tools, and for them to spread to the private sector. (Which they are doing, but not fast enough for Ryan to work).

By the way, you may notice a theme developing here. Romney, Ryan, and their supporters keep screaming that the Affordable Care Act will do awful things to seniors. But if they’re right, they’re also indicting their own plans. That’s because they’re also determined to reduce spending on Medicare. The difference is that, unlike Obama, they’re willing to do so in a way that threatens the program’s guarantee of benefits. That’s obviously not a popular cause, so they’re trying their best to confuse people.

Update: I rewrote the last paragraph to clarify my point. I also noted that, if Medicare beneficiaries start losing access to care, Congress might decide to undo some of the Affordable Care Act's spending cuts.

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