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Paying For ObamaCare Will Require Huge Medicare Cuts

Investor's Business Daily

It is hard to understate the fiscal importance of a recently released paper from the Office of the Actuary for the Centers for Medicare and Medicaid Services (CMS).

And yet the document received only a shoulder shrug from the media and a complete blackout from Democrats. It's easy to see why.

The back-story is that a group of trustees monitors the Medicare program and releases an annual report outlining the program's current and projected fiscal condition. (The same is true for Social Security.)

However, the trustees' projections must follow whatever the law says.

So, for example, if federal law says Medicare will only be allowed to grow by some designated annual growth rate, that's what the trustees have to assume in their projections — regardless of whether they believe those spending limitations will actually occur.

Fortunately, Medicare's Office of the Actuary doesn't have to live in the political dream world.

For the third time since Democrats pushed through ObamaCare in 2010, the office has released a "memorandum" to highlight the challenges — to put it mildly — the government faces in adhering to the Medicare and Medicaid growth rates imposed by the president's health care law.

In the 21-page memorandum to the Medicare trustees' 2012 report, the actuary's office explains in very diplomatic terms why a person would be a fool to believe the trustees' report.

"The Trustees Report is necessarily based on current law; ... however, the projections shown in the report are clearly unrealistic ... The purpose of this memorandum is to present a set of Medicare projections under hypothetical alternatives to those provisions to help illustrate and quantify the potential magnitude of the cost understatement under current law."

Slashing Payments

For example, in 2009 the average amount the government reimbursed hospitals caring for Medicare patients was about 67% of what private health insurance would have paid; Medicaid rates were about 66%, according to the actuary.

Medicare reimbursed physicians — physicians and hospitals fall under different Medicare programs — about 80% of what private insurance paid, while Medicaid paid only about 58% (2008).

Those low Medicaid rates help explain why it's so hard for the poor on Medicaid to find a doctor who will treat them.

While ObamaCare requires some specified payment increases for a few years — a political move intended to assuage opposition from states and health care providers — all of that changes in the long term.

The memorandum explains that ObamaCare requires the trustees to assume a steady decline in the hospital reimbursement rates for both Medicare and Medicaid — to about 39% of what private insurance would pay in 2086.

Worse yet, the trustees must assume that physician reimbursements under Medicaid will drop to 55% of private health insurance by 2086, while physicians serving Medicare patients "would eventually fall to 26% of private health insurance levels."

ObamaCare's Magic

And PRESTO, ObamaCare is "paid for," just as President Obama demanded! Oh, and those assumptions simultaneously reduced Medicare's long-term unfunded liability by $53 trillion.

What a deal! (The unfunded liability had been estimated by the trustees in 2009 at about $90 trillion.) And it's all because ObamaCare demands the number crunchers to assume the government will be paying so much less for health care services.

The Medicare actuary (rightly) doesn't believe the government will actually make those cuts. And so it's taking the unprecedented step, for the third time, of releasing an alternative (read: realistic) scenario.

The actuary says that hospital expenditures are "projected under current law (i.e., ObamaCare) to rise from about 3.8% of taxable payroll ... to 6.3% in 2085."

The actuary thinks 9.9% is more realistic.

Current law projects that Medicare physician spending will grow from 1.48% of GDP to 2.52% by 2080. The actuary thinks, with several variables considered, that 4.39% of GDP is more realistic.

The memorandum closes by warning that "readers should interpret the current-law Medicare projections cautiously."

That's an understatement!

"For example, the 2011 Trustees Report showed estimated Part B (physicians) expenditures of $220.5 billion for 2012. The actual amount is now expected to be $246.9 billion, which is $26.4 billion or 12% higher than last year's estimate ..."

It would be interesting to know if Democrats' federal budget projections were as far-fetched as those they imposed on Medicare, but Senate Democrats haven't produced a budget in more than three years.

And given the ludicrous assumptions they have forced on Medicare, why bother?

• Matthews is a resident scholar with the Institute for Policy Innovation in Dallas.