December 13, 2012
As the discussions over the fiscal cliff continue, the debate over entitlement reform is getting confused. The issue is not only how much savings constitutes reform, but also the underlying policies that get you there. Thus far in the fiscal cliff negotiations, Republicans have pushed for greater spending cuts, namely in Medicare.
To that point, a National Journal article commented, “In just a few short weeks, the dominant Republican line on Medicare has shifted from attacking the Democrats for making cuts to the program to demanding a new round of cuts to reduce the federal deficit.”
But this claim cannot be taken at face value, as all spending reductions are not created equal.
There are major distinctions between Obamacare’s Medicare cuts and Medicare reforms that would reduce spending and extend the life of the program.
Obamacare’s Medicare Cuts Fund Obamacare. Despite claims to the contrary, Obamacare’s cuts do not extend the life of the Medicare trust fund and do not enhance the ability of the government to pay for future Medicare benefits. The same money cannot be used to finance new spending and shore up Medicare’s trust fund.
Medicare is facing enormous financing issues. Over the long term, the program has made $37 trillion worth of benefit promises that the government cannot afford to fund. Meanwhile, the hospital insurance trust fund, which funds Medicare Part A, is projected to be exhausted by 2024.
Despite these inescapable facts, Obamacare cuts Medicare spending by $716 billion over 10 years and uses those savings to fund new spending in Obamacare—not to help stabilize the Medicare program.
Price Controls Do Not Work. Obamacare’s Medicare cuts are based on ratcheting down government-controlled reimbursement rates. These types of draconian cuts have severe impact on the delivery of care. Former Heritage policy analyst Kathryn Nix explains, “Medicare reimbursements, rather than the needs of patients themselves, increasingly dictate provider behavior and the quantity and quality of the care they provide.”