Commentary

The Medicare Malpractice of the Budget Deal

What could congressional and presidential negotiators have been thinking when they produced the budget deal’s Medicare changes? Were they asleep? Out of the room? Watching Tiger Woods win the Masters? Those are generous explanations for their Medicare changes, which are best described as the worst of both worlds: they will fail to control Medicare’s skyrocketing costs, and they will jeopardize the quality of care received by millions of senior citizens.

The budget agreement purports to save $115 billion in Medicare spending over the next five years. These projections should always be taken with a large dose of skepticism. Since its inception, actual Medicare spending has routinely exceeded projections. Moreover, the vast majority of projected savings occur as usual in the last two years of the agreement — so far off as to be virtually impossible to forecast.

Far more important than the deal’s speculative spending targets is the fact that the budget agreement abandons any real attempt to reform the Medicare program. Rather than pursue needed reforms such as changing consumer behavior by raising deductibles and experimenting with medical savings accounts, the budget agreement accepts President Clinton’s plan for reducing Medicare costs — price controls and accounting gimmicks.

There is nothing new in this approach. Virtually the entire history of the Medicare program has been a litany of one form or another of price controls. These controls have managed to reduce provider reimbursements to the point where many providers now receive barely half the fee that private insurance pays. Now the budgeteers want to slash payments by as much as an additional 10 percent.

Unfortunately, there is no evidence that this will achieve any of the savings predicted. From “cost-plus” to “DRGs” to the “Resource-Based Relative Value Scale,” attempts at Medicare price controls have failed to reduce the program’s skyrocketing cost. There is no reason to think that these price controls will be any more successful than previous attempts.

However, there is a large body of evidence that Medicare price controls endanger the quality of care. For example, a 1988 report of the Department of Health and Human Services warned that over half a million Medicare patients were receiving poorer quality care and that the number of Medicare patients being discharged before their conditions stabilized was increasing. The House Government Operations Committee figured the cost at 3,269 avoidable deaths, a high price to pay for uncertain budget savings. In 1993, the Physician Payment Review Commission worried that declining Medicare reimbursement levels may “compromise access to care for Medicare beneficiaries.”

Surveys reveal many doctors think that Medicare presses them to discharge patients too soon and that the quality of care has suffered as a result. Reviews of heart and hip fracture patients have found evidence of significant numbers of premature discharges.

Apart from price controls, the other major change in Medicare under the budget agreement is to shift the cost of home health care, Medicare’s fastest growing component, from the Medicare Part A Trust Fund to Medicare Part B, which is funded by general tax revenues. By doing this, the budget agreement postpones the collapse of the Medicare Trust Fund from 2001 to 2008. This is an accounting gimmick that Republican leaders swore they would resist in earlier budget negotiations.

This smoke-and-mirrors accounting does nothing to solve Medicare’s long-term structural problems: demographic and actuarial instability, increasingly expensive high-tech medicine, and third-party payments that provide no incentive to economize. Worse, the budget deal undermines the growing bipartisan consensus to make serious reforms. Having removed the perception of urgency from Medicare reform, Congress will be almost certainly be content to postpone action. After all, the entire theme of this budget agreement seems to be to avoid any action that might upset any voting bloc.

It is easy to understand why Republicans are gun-shy about tackling Medicare reform. The last Congress put forward Medicare reform that, while not perfect, made a serious attempt to fix that program. In return for this good faith effort, they were savaged. The scare campaign conducted by President Clinton and the Democrats in the last election was one of the most demagogic in memory. But that cannot — and should not — excuse this ill-advised budget deal.

Michael Tanner is director of health and welfare studies at the Cato Institute.