Conservatives Seize Upon, Fail To Understand Health Report

by Jonathan Chait | April 23, 2010

The Medicare Actuaries have a new report out projecting that the Affordable Care Act will increase the total sum of medical spending over the next decade. National Review's Daniel Foster excitedly claims vindication, calling it a "devastating report." Hardly.

First, this isn't new. The Actuaries did a report like this last fall, finding similar results. So the idea that this analysis was only sprung on America after the law was passed -- "Pass the bill to find out what's in it," snarks Foster -- is untrue.

Second,  you have to keep in mind what's being estimated here. The estimate isn't whether the Act will decrease the deficit. It's whether it will decrease overall medical spending. And it finds that it will increase total medical spending by just under one percent in 2019.

Third, keep in mind that the cost control elements of the law mostly take effect after 2019. They don't factor into the analysis not because the analysis discounts them but because the analysis doesn't attempt to measure them. Basically, over the next decade, the Affordable Care Act expands coverage, and offsets the cost with a mix of new taxes and spending reductions. It's not supposed to control costs over this time. The conclusion that it will provide coverage to some 30 million people who don't have it, while only expanding total spending by less than one percent, is what I'd call good news. That's what it's supposed to do.

Now, it's true that the actuaries think the Medicare cuts will be too onerous and will have to be clawed back. Who knows, they may be right. But if CBO is conservative about scoring systemic changes, the Medicare actuaries are downright fascistic about it. They overestimated the cost of the Medicare prescription drug benefit by a staggering 37%. As Len Nichols explained when the similar analysis came out last fall:

The actuary's office loathes predicting behavioral changes. It therefore underestimates the private sector's ability to adapt to new incentives.  This is why the only real savings they score are direct and unambiguous price changes, like the House bill's reductions to yearly market basket updates.  They discount and ignore the impact of the Center for Medicare and Medicaid Innovation, which is charged with implementing every reasonable payment reform pilot imaginable, including: accountable care organizations, medical homes, and bundled payments that give clinicians across organizations incentives to coordinate and improve patient care.
Further, the CMS actuaries express worry that the profitability of hospitals, skilled nursing facilities, and home health agencies would be so grievously harmed by the proposed payment cuts that they  would cease to accept Medicare's business.  This reflects a pessimistic belief that providers could not become more efficient.  A recent McKinsey memo, described by Jonathan Cohn in The New Republic (subscription required), concludes the opposite.

So, again, CMS's conclusion about the Medicare cuts is at odds with the private sector analysis. It's also at odds with the revealed preference of the private sector. Health care providers figured that they could create enough new efficiencies to absorb the cuts in the law. That's why they supported it. If they agreed with the Medicare actuaries, they would have fought the law kicking and screaming. (No, they don't want to be in the position of having to demand every year that Congress find new money to rescind old cuts.)

As I said, the attempts to really transform American medicine mostly come in the second decade. I wish it came sooner, in a death panel world, we should feel lucky they happened at all.

Source URL: http://www.newrepublic.com//blog/jonathan-chait/conservatives-seize-upon-fails-understand-health-report