A real healthcare flimflam

Last Friday and over the weekend, the uber-partisan Paul Krugman took several swipes at Paul Ryan and his Roadmap, starting with the complaint that the CBO didn’t score the plan.  In a follow-up, he called Ryan a flimflammer.  One problem.  The CBO doesn’t score revenue forecasts.  That’s the job of the Joint Committee on Taxation, and they wouldn’t do forecasts beyond ten years.  Ryan responded to Krugman here, but more interestingly, the left-leaning Tax Policy Center* defended Ryan.  Instead of acknowledging that he made a mistake, Krugman groused.  And this is my problem with some on the hard-partisan left.  They don’t just stop at policy disagreement.  Instead, they overreach by ascribing evil or ill intentions or dishonesty to other side, which can’t but help but poison debate and discourse between right and left.  Of course, there are those on the right who aren’t innocent either, but just saying.

Ezra Klein comes across as a voice of reason.  There are indeed legitimate criticisms of Ryan’s Roadmap, and it would certainly cause a fundamental shift in taxes and spending.  But the thing is, the Roadmap is hypothetical.  It’s a proposal on a virtual blackboard.  It’s unlikely that the GOP will take regain the majority in the House this year (in my opinion), so a Ryan bill won’t be on any legislative agenda any time soon.  But even if the GOP does win enough seats, it’ll never see the light of day while Obama is in office.  So flimflam or not, the Ryan proposal is an idea that has no chance of consideration until 2013 at the very earliest.

But if Krugman wanted to see a real flimflam based on actual policy, all he’d have to do is peruse the Medicare Trustee’s report.  The board members are as follows:

  • Timothy Geithner, Treasury Secretary
  • Hilda Solis, Secretary of Labor
  • Kathleen Sebelius, Secretary of Health and Human Services
  • Michael Astrue (the Bush holdover), Commissioner of Social Security
  • Vacant
  • Vacant
  • Donald Berwick, the man who Obama recess-appointed in a rush

But a key figure refused to endorse the report, the chief actuary of Medicare.  Why?  The folks at e21 explain:

This year, the Medicare Chief Actuary clearly did not feel he could in good conscience sign such a declaration.

A cursory review of the Trustees’ Report as well as the CMS actuary’s “illustrative alternative” projections elucidates why the official Trustees’ projections are utter fiction.

The actuary’s alternative memo explains that “the projections in the report do not represent the ‘best estimate’ of actual future Medicare expenditures.” Worse than that, they are not even in the ballpark of reasonability. The official 2010 Trustees’ Report tells us that total Medicare expenses will be total 6.37% of GDP by 2080. The CMS actuary’s alternative memorandum explains that 10.70% of GDP is a more reasonable estimate for that year – though one that is roughly 68% higher.

If the 2010 report’s projections were arguably within the range of plausibility, perhaps the actuary could have agreed to sign off on them. But this was clearly prohibited by the magnitude of the deviations from reality. (For additional perspective, consider that the previous 2009 Trustees’ Report projected that program costs by 2080 would be 11.18% of GDP – more than 75% higher than this year’s projection.)

The actuary’s memo identifies two principal reasons why the official report’s projections are so far afield from reality.

One is that the official scoring presumes that payments to Medicare physicians will decline on December 1 by 23%, followed by a further 6.5 percent decline in January, 2011, and another 2.9 percent decrease in 2012. The Obama administration and the Congressional leadership are on record as opposing these enormous payment reductions, and no one seriously expects them to happen. The Medicare actuary’s memo refers to this physician payment formula as “clearly unworkable and almost certain to be overridden by Congress.”

The other major source of projection error is the assumption, enshrined in the recent health care law, that future program cost growth will be contained by downward adjustments in annual price updates, reflecting in turn the assumption that health service productivity growth will parallel “economy-wide productivity.” The actuary states, however, that “(t)he best available evidence is that most health care providers cannot improve their productivity to this degree – or even approach this level – as a result of the labor-intensive nature of these services.”

There’s more.

Bad though all of this is, none of it is actually the worst gimmick in the official report’s advertised improvement in Medicare solvency. That involves the double-counting of Medicare savings. Earlier this year, Congress passed a health care bill containing various new Medicare taxes and constraints on program expenditures. Such savings are assumed in the official report to extend the solvency of Medicare. But Congress chose instead to spend the savings on a new health care entitlement.

The Medicare actuary wrote a memorandum on April 22 of this year calling attention to this “double-counting.” “In practice,” he stated, “the improved Part A financing cannot simultaneously be used to finance other Federal outlays (such as the coverage expansions under the PPACA) and to extend the trust fund, despite the appearance of this result from the respective accounting conventions.”

In other words, money can only be used once. Since the Medicare savings is being spent elsewhere on expanded health care coverage, it is not really being employed to extend Medicare solvency. To claim an improvement in Medicare financing is to mislead about the effects of recent legislation.

e21 cautions that the Trustee’s report has to be based on current law, no matter how implausible.  But it basically means that the 289-page document is essentially worthless.  Those who favorably cite that report on Medicare solvency are the real flimflammers.