The Wall Street Journal does not endorse candidates for elected office. So why was its lead editorial for August 8, 2010, titled “Richard Foster for President”? Especially since Foster already had a job, as chief actuary for the Centers for Medicare and Medicaid Services (CMS), and wasn’t running for political office, much less the White House.
Foster saw the need to shed a little actuarial light on the then-recently passed Patient Protection and Affordable Care Act, or Obamacare—light that Democrats had done so much to obscure in order to pass the bill.
And so Medicare’s Office of the Actuary released an 18-page “Illustrative Scenario” report in August 2010 explaining, in very polite terms, why many of the Democrats’ claims about making Medicare, and even Medicaid, stronger and more financially stable were not believable.
And for his courage in telling the truth in Washington about a new entitlement program, an act of bravery seldom seen these days, the Journal recommended Foster for president. He ignored the suggestion—though he says it was one of his favorite headlines—and stayed at CMS until 2013, retiring after 40 years at Social Security and Medicare.
I contacted Foster in order to get some of the behind-the-scenes info on his reasons for publishing the first report, which has become an annual publication, and whether there had been significant pushback from the Obama administration for doing so.
The report is in some ways an addendum to the Medicare Trustees’ annual report on the program’s financial condition. The Foster paper begins: “The Trustees Report is necessarily based on current law [including Obamacare]; as a result of questions regarding the operations of certain Medicare provisions, however, the projections shown in the report do not represent the ‘best estimate’ of actual future Medicare expenditures. The purpose of this memorandum is to present an alternative scenario to help illustrate and quantify the potential magnitude of the cost understatement under current law.” [emphasis added]
My translation: You can’t believe a word of the trustees’ projections, though that’s not the trustees’ fault.
To understand just how bold a step this was, consider the CFO of a Fortune 500 company going rogue and sending out an alternative financial statement after the company released its official report. Think that would raise some concerns about the official statement?
Foster didn’t go rogue; he followed the proper procedures. He went to the trustees, which include both Democrats and Republicans, and explained his concerns about “the potential understatement of costs” and got their sign-off on the project—though he says some of the staff were opposed to such a publication because this was the president’s signature legislation.
Nor did Foster get much pushback from administration officials at the time who believed that various elements of the legislation would work to hold down health care costs. That would be the same people who believed that if you liked your health insurance policy you could keep it.
Fortunately, Forster says the administration didn’t try to push him into retirement (as I had feared they might have)—though he suspects “there might have been some cheering that I was retiring.” He retired because he says he was working 60 to 70 hours a week once the ACA passed and he was ready for a rest.
He says today he remains equally concerned about the issues he had raised in the memorandum, and justifiably so: It is increasingly clear that the hoped-for spending reductions based on enhanced productivity provisions (e.g., stronger managed care efforts and electronic medical records) assumed in the law are not working out as the administration had predicted.
Actually, nothing is working out as the administration had predicted.
Foster remains concerned about Medicare’s financial sustainability. He says of the hospital program (Part A), “You need to either increase the financing or reduce the expenditures in order to get the two in balance for the long term. … The benefits that are currently promised can’t be paid out of revenues that are currently scheduled, and that’s a big deal.”
He also says that, in his view, fixing the financial shortfall won’t be easy. He does not see the “productivity adjustments” having an impact, and so “the actual costs are likely, in my view, to be higher than currently projected.”
Nor does Foster think the government can lower provider payment rates any more than it already has—even though the ACA imposes significantly lower payment rates. As the 2011 Illustrative Scenario report says, under the law:
Medicare physician payment rates decline to 57 percent of private health insurance payment rates in 2012, due to the scheduled reduction in the Medicare physician fee schedule of nearly 30 percent under the SGR formula in current law. (In practice, Congress is very likely to override this reduction, as it has consistently for 2003 through 2011.) Under current law, the Medicare rates would eventually fall to 27 percent of private health insurance levels by 2085 and to less than half of the projected Medicaid rates.
In other words, the actuaries at Medicare did not think Congress would allow Medicare reimbursement rates to physicians to drop to about a quarter (27 percent) of what private health insurance pays (it currently pays about 80 percent of private health insurance). And he is absolutely right.
And if Congress doesn’t cut those reimbursement rates, it will have to raise taxes—probably the payroll tax that funds Medicare Part A. Foster’s paper looks at several options.
While CMS has had some cost-reducing successes, such as fighting fraud, Foster claims there’s a lot more to do. He thinks more comparative effectiveness—in which experts assess the cost and effectiveness of various therapies and make their recommendations—could be helpful, especially where new technology is concerned.
And there is room for more competition among Medicare health plans, similar to what Rep. Paul Ryan has proposed. That would mean expanding what’s called “premium support,” in which Medicare pays a fixed amount of money toward seniors’ health care, which would encourage seniors to pick the more efficient plans. Medicare Advantage already employees a version of that model, and millions of seniors voluntarily choose that option.
Talking to Foster, you get the impression that we are a long way from fixing Medicare’s financial instability. At least he did his part, by doing his best to indicate just how big the challenge is.