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The Facts on Saving Medicare

CBO Director provides needed context to misguided Medicare attacks

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Washington, June 23, 2011 | comments

The House-passed budget, The Path to Prosperity, saves and strengthens Medicare for current and future retirees. According to the Congressional Budget Office (CBO), this plan would put the budget on a path to balance and actually pay off the debt over time – thus averting the debt-fueled economic crisis foreshadowed by the CBO’s latest report, The Long-Term Budget Outlook.

Some critics of the House-passed budget have taken CBO’s analysis of its Medicare reforms out of context to launch false attacks against the only plan put forward in Congress that actually saves Medicare. Today, CBO Director Doug Elmendorf provided the context that these attacks are missing. Specifically, Director Elmendorf testified that:

  1. Medicare’s status quo is unsustainable: The Medicare trust fund is going broke, and papering over the problem with more debt would result in sharp disruptions and painful consequences for current beneficiaries.

  2. CBO’s analysis ignores – due to “a gap in [its] tool kit” – the true consequences for seniors under the Democrats’ preferred approach to Medicare. Their plan relies on the failed techniques of price controls and bureaucratic denial of care to squeeze savings out of Medicare to the detriment of the patient.

  3. CBO lacks the ability – because they “don’t have the tools” – to demonstrate the merits of true choice and competition in health care under the Republicans’ preferred approach, which is to force providers to compete on quality and cost to better serve the patient.

House Budget Committee Chairman Paul Ryan helped clarify the difference between the Democrats’ misguided health care law versus the reforms proposed in the House-passed Path to Prosperity budget: Who should make health care decisions for you and your family? A board of 15 unelected bureaucrats in Washington? Or you?

Medicare’s status quo is unsustainable


Critics of the House-passed Path to Prosperity budget have argued that a CBO analysis of its reforms shows that it would shift health-care costs to seniors. But since the Path to Prosperity’s Medicare reforms do not affect anyone over the age of 54, this line of attack is demonstrably false. The true threat to the health security of America’s seniors is the bankruptcy of this critical program, which is what the do-nothing-but-demagogue plan ensures.  Director Elmendorf made clear the fallacy of comparisons to “traditional Medicare” – as the program is going bankrupt if left unreformed:

CHAIRMAN RYAN: Yesterday the [Medicare] Trustees in Ways and Means confirmed in a hearing that “Medicare as we know it… ends in 2023” and that’s a quote… So this is unsustainable?

CBO DIRECTOR ELMENDORF: The path the budget is on under current policies is most definitely unsustainable.

RYAN: And the Medicare baseline itself?

ELMENDORF: So Medicare – Part A of Medicare – funded through the trust fund is on an unsustainable path and our own projection is the fund is actually exhausted in 2020, a few years earlier than the [Trustees].

Moreover, doing nothing about the unsustainable growth of Medicare spending would almost certainly bring about a major fiscal crisis in this country – one in which current Medicare beneficiaries would be hit hard by severe fiscal and economic disruptions.

ELMENDORF: [On the question of what happens to Medicare in the event of a fiscal crisis:] If the government becomes unable to borrow at affordable rates – as we have seen some other countries end up in that position – then there would probably need to be very stark changes in the whole range of government spending programs.

RYAN: In the immediate term at the time?

ELMENDORF: Right away. When that situation arises the government cannot turn to capital markets to obtain the funds it needs and it tries to balance the budget almost literally overnight. The disruptions to the federal government’s policies and to the economy and society can be immense.

Any attack on The Path to Prosperity’s plan for Medicare that compares it to “traditional Medicare” is comparing a real plan to save Medicare with an impossible fiscal fantasy.

CBO’s analysis fails to demonstrate the consequences of price controls and rationing from the President’s plan


The President’s massive health-care law, while it fails to save Medicare, drastically disrupts Medicare. The health care law forced through Congress last year raids $500 billion from Medicare to pay for new entitlement spending. CBO’s analysis ignores the true consequences to seniors that would occur as a result of the Democrats’ misguided approach. Director Elmendorf acknowledged their models’ shortcomings in his testimony today:

RYAN: Do your projections assume providers will accept Medicare patients at the same rate now under the traditional program? Because let’s remember, Medicare already pays providers 80 percent of what they will receive in the private market. By 2030, this will fall to about 40 percent. Do your projections assume providers will continue to accept Medicare patients at the same rate they do now under the traditional program and does your analysis assume – despite the additional provider cuts coming in current law – that this will have no effect on the quality or access of care?

ELMENDORF: The way I would put it Mr. Chairman, is we don’t model the behavior of physicians. We don’t model the access to care or quality of care.

RYAN: So you assume it stays on as is?

ELMENDORF: That is the point we noted in the letter analyzing your proposal. That is a gap in our tool kit and a gap we are trying to fill. But under the current circumstances, we don’t model either on the regular base line projections or in our analysis of last year’s health legislation or your proposal, the effects that might happen under current law or alternatives.

RYAN: Therein lies the issue here. Your analysis effectively assumes that no matter how much the government pays providers for health care services, providers will continue to provide the same quality care and access. That is the gap you talk about.

Any attack on The Path to Prosperity’s plan for Medicare that compares it to the Democrats’ approach fails to capture the full consequences for seniors of the deteriorating access and quality that results from bureaucratically denied care.

CBO also lacks the tools to model the effects of choice and competition from House Republicans’ plan to save Medicare


One of the key principles underlying the reforms in The Path to Prosperity budget is that when providers compete against each other for a patient’s business – costs go down and quality goes up.

We have seen this play out in the Medicare Part D (prescription drug) program. Part D has come in 40 percent below cost projections. While part of those savings can be attributed to lower-than-expected enrollment, Medicare’s chief actuary has calculated that nearly 85 percent of the program’s savings were “a direct result of competition and significantly lower Part D plan bids.”

The reforms in the House-passed budget are modeled after these kinds of reforms: seniors choose from a set of guaranteed, Medicare-approved coverage options. Yet CBO’s analysis did not model the long-term downward pressure on health care costs that would result from the effects of choice and competition:

RYAN: When analyzing projected costs under the House-passed budget, did you take into account the effect choice and competition would have on the growth rate of health care costs and do you assume people will continue to utilize health services at the same rate as they do now? Meaning, what I got out of what you just said is that you’re not really gleaning those kinds of lessons from the experience we have from the Part D results.

ELMENDORF: We are not applying any additional effects of competition on this growth rate over time in our analysis of your proposal. And again, we don’t have the tools, the analysis we would need to do a quantitative evaluation of the importance of those factors.

Any attack on The Path to Prosperity’s plan for Medicare that assumes health care costs will keep spiraling upward are failing to account for the beneficial effects of competition and choice.

Who decides: A Board of Bureaucrats, or an Empowered Patient?


Finally, Chairman Ryan laid out the choice of two futures on Medicare: One future in which bureaucrats make health care decisions for you and your family, and another future in which those decisions are left to patients, their families and their doctors.

RYAN: There are two ways of doing this. Do you put the patient in charge, or do you put the bureaucracy in charge? We think a patient-centered system is a better way to go. …

Let’s have a system that is decentralized and not government-centralized. Let’s not go with price controls because price controls – it might make the numbers add up on paper, but it will just deny access to people. And so, what we have found is when we continue to underpay providers, which the Trustees are telling us, providers are going to get about $0.66 on the dollar for Medicare now going down to $0.33 on the dollar. We can’t assume they are going to keep taking Medicare.

I, or we, don’t think that is the proper approach. More to the point, we don’t think unelected, unaccountable bureaucrats, no matter how smart they are, can figure out how to micromanage 17 percent of our economy. We believe that providers competing against each other – insurance companies, hospitals, physicians – competing against each other for our business as empowered consumers, is a better way to go, and we have a lot of evidence that shows that.

The point that this analysis does not include, is it does not include the fact that we proposed to risk-adjust the subsidies. As a person gets sicker in Medicare we want them to have a higher subsidy to protect them against sticker shock. It also does not include the fact that we proposed to add an additional $7,800 to begin with, which keeps growing every year to low-income seniors to subsidize and cover their out-of-pocket costs.

There is only so much money to go around. And our point is we shouldn’t subsidize wealthy people as much as everybody else. And we should subsidize low-income seniors even more than everybody else. That is the way we think taxpayers dollars ought to be deployed, and we want the patient to be the nucleus of the health care system – in Medicare and everywhere else – instead of some board of 15 technocrats giving Caesar’s thumbs up or thumbs down on whether this will work or not or who gets paid what, when, where or how much. We don’t think that will work because we have lots of evidence already that it doesn’t.

For more information on The Path to Prosperity, visit: /fy2012budget/

For more facts on The Path to Prosperity’s Medicare reforms, visit: /SettingTheRecordStraight/Medicare.htm


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