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Best Answer Yet to Cost Control Cynics

You've heard the argument before: Promises of controlling costs in health care reform are not credible because Congress won't follow through on its promises. In other words, Congress may pass a law that calls for reducing what the government (through Medicare) pays various sectors in the health care industry. But Congress will inevitably get cold feet and cancel those cuts.

Today the eminently trustworthy Center on Budget and Policy Priorities weighs in with a new paper. And it shows, conclusively, what many of us have been suggesting for a while now:

Despite some critics’ charges, Congress has repeatedly adopted measures to produce considerable savings in Medicare and has let them take effect. For example, Congress took such action as part of major deficit-reduction packages in 1990 and 1993 and as part of more modest deficit-reduction packages in 1997 and 2005. Virtually all of the cuts that it enacted in 1990, 1993, and 2005 went into effect. After Medicare spending slowed dramatically after 1997--in 1999, it was for the first time lower than it had been the year before--and the budget was balanced in 1998, Congress did ameliorate some of the Medicare cuts that it had enacted in 1997. But, even in those special circumstances, it allowed four-fifths of the 1997 cuts (other than those described in the next paragraph) to take effect.

In arguing that Medicare cuts never “stick,” critics point in particular to Congress’ repeated refusal to let the reductions in physician reimbursement rates under Medicare’s so-called “sustainable growth rate” (SGR) mechanism, which it enacted in 1997, take full effect. The SGR cuts, however, represented a badly designed measure that was not intended to produce large savings (the projected SGR savings represented less than five percent of total Medicare savings in the 1997 bill), but turned into a blunt instrument that would have produced cuts far in excess of what was anticipated and would have had harsh and indefensible effects. (Moreover, even though Congress did not allow the full cuts required under the SGR formula to take effect, it has still cut the physician reimbursement rate substantially--at its current level, the reimbursement rate in 2010 will be 17 percent below the rate for 2001, adjusted for inflation.) The SGR mechanism has little in common with most of the other provisions that Congress has enacted over the years to produce savings in Medicare and that have, in fact, taken effect. This distinction is important because most of the Medicare savings provisions in the House and Senate health reform bills are similar in nature to the types of Medicare provisions that Congress has enacted in the past that have taken effect--and they differ markedly from the blunt-instrument design of the SGR cut. 

The phrase "required reading" is overused, but this paper really is, or should be, for anybody who wants to engage seriously on the debate over whether health care reform will contain costs.

The paper makes another, even broader argument about cost containment. But it's so important I'm going to save it for a separate item, to come soon.