Below the Medicare "Doc Fix" Surface: President Obama's Big Liberal Health Care Rout No One Noticed

President Obama signs a permanent Medicare "doc fix" in the Rose Garden.

President Obama signs a permanent Medicare "doc fix" in the Rose Garden.

Yesterday, President Obama signed a pretty important and progressive reform to Medicare that no one is talking about. The bill President Obama signed sailed remarkably smoothly with bipartisan votes in both the House and the Senate. But that's not the reason it was a rather significant liberal achievement. We will get to why it was, but first, let's review what exactly the President just signed into law.

The legislation's primary purpose was to fix the "doc fix" in Medicare, forever. What on earth is the "doc fix?" As part of a deficit reduction package in the 90s - in 1997 to be exact - the then-Republican Congress and then-Democratic president (Bill Clinton) enacted something called the Medicare "Sustainable Growth Rate" formula, or the SGR. If Medicare costs exceeded per-capita economic growth, providers would be punished by cutting reimbursements. That, they said, would make Medicare "sustainable."

Of course the cost growth of Medicare quickly outstripped economic growth, and the first SGR cuts were to have kicked in for 2003. It didn't. None of the cuts did, because Congress enacted yearly fixes, either keeping provider reimbursements the same or slightly increasing them. They paid for it by taking money from other areas of health care spending.

But Congress never before deficit spent to do these fixes. So where exactly did all that extra money come from? From the Committee for a Responsible Budget - who lamented the just-enacted legislation because it didn't cut enough, we have an overall picture:

Mr. Adler’s recent analysis found that cuts to other Medicare programs made up about 61 percent of the doc fix’s cost. Cuts to Medicaid and the Affordable Care Act made up about 29 percent. “Pension smoothing” and other time-shifting maneuvers that Mr. Adler classifies as true budget gimmicks made up 7 percent of the savings, and 3 percent of the cost came from a fee on certain financial services.

While a lot of these cuts were “benign”, a lot of it affected the poorest and those who need help the most. Curiously enough, Medicaid acceptance has trended downward, and more and more pressure has been put on Medicaid providers and beneficiaries. Republicans had also hoped to use the yearly “doc fixes” to bleed the Affordable Care Act to death.

Both of those are now off the table. The idea of bleeding dry other important health care programs using Medicare's provider-pay as cudgel is now off the table.

The legislation President Obama signed in essence funds the fix – which sets small yearly increases to the Medicare payment formula (about 1% a year) and ties payment to performance after 2019 – is essentially deficit financed. Most of the $140 billion tag for the fix isn’t paid for, and that’s a good thing in this instance (I will explain in a minute). The part that is paid for is a tax increase on the wealthy – wealthier seniors to be precise. Seniors making over $85,000 (individual income) a year will have to pay a higher Medicare Part B premium. After that offset, the Medicare Actuary expects the legislation to contribute an additional $102 billion over 10 years to the federal deficit.

Which brings us to why the deficit-spending is not such a bad thing in this case. Ordinarily, deficit-spending in Medicare would be cause for alarm, because the deficit would be made up for from the Medicare trust fund, shortening its life.

Except that the trust fund only affects and pays for Medicare Part A, also known as Hospital Insurance – which most retirees eligible for Social Security get for free. The trust fund is properly known as the Hospital Insurance trust fund, and the provider payments here only affect Part B providers, i.e. outpatient care. In other words, the Medicare trust fund can't be touched, and Congress just agreed not to keep docking Medicaid and the ACA to fund it.

That most likely means that should Congress choose to offset this deficit increase, they are likely to come either from a further increase in taxes or payments (Republicans have crowed about this bill's provision raising the Medicare Part B rates on wealthier seniors, believing it would help shoot down public support for Medicare [fat chance]), or in cuts to other programs - and there the largest chunk of spending belongs to Defense.

Sure, they can try to cut the ACA or Medicaid later, but without being able to link it to the scary prospect of Medicare payments going down by 20% or a quarter, they will have a tough time justifying such cuts, and Democrats will have an easier time blocking them. They can try to raise the Medicare eligibility age, but they would have to allow the people in the gap to buy insurance through the Affordable Care Act, meaning they will end up making more people eligible for Obamacare! And, they would have to fund that too.

For these reasons, this was a pretty brilliant play on the part of the President and the Democrats. They used the doctors' lobby - which for some reason beyond my understanding often backs Republicans but have been seeking a permanent repeal of the SGR - to neutralize GOP threats against the two (count'em, two) other progressive priorities: Medicaid and Obamacare.

And oh, the law the President just signed also extends the Children's Health Insurance Program (CHIP) for two more years. You will recall that one of the first things Barack Obama did when he became president was sign a massive expansion of CHIP.

So while the media is either ignoring the story altogether or huffing and puffing about the fact that it isn't mostly paid for, the legislation the President signed yesterday is a massive progressive rout on health care policy: it solved Medicare payments, protected Medicaid and the Affordable Care Act from a politically potent axe, and expanded CHIP. The Rigth simply got rolled (and you can tell they got rolled by the loud houls coming from the Right precisely because they didn't get to cut other health care programs into oblivion).

Well done, Democrats. Well done, Mr. President.

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