The Ratio of Obamacare's Medicare Cuts to New 'Benefits' is Fifteen-to-One

President Obama's claims that Obamacare's $716 billion in net cuts to Medicare are good for seniors deserve a closer look. (Photo credit: Wikipedia)

President Obama insists that Obamacare’s $718 billion in cuts to Medicare don’t affect seniors’ benefits. That’s misleading enough on its own. But the President goes even further, by claiming that his signature health law actually expands benefits for seniors, because the law slightly increases Medicare spending on preventive services and prescription drugs. But according to the Congressional Budget Office, for every $500 the law spends on preventive services and prescription drugs, it cuts the rest of Medicare by $7,385. That’s a cut-to-spending ratio of nearly 15 to 1.

(DISCLOSURE: I am an outside adviser to the Romney campaign on health care issues. The opinions contained herein are mine alone, and do not necessarily correspond to those of the campaign.)

“I have strengthened Medicare as President,” the President insisted in his recent speech to the AARP. “We used those [$716 billion in] savings to lower prescription drug costs, and to offer seniors on Medicare new preventive services like cancer screenings and wellness services.”

 

CBO: Obamacare’s Medicare cuts vastly outweigh new benefits

So let’s review the numbers. First, the $716 billion estimate of Obamacare’s net cuts to Medicare over the next ten years comes from the most recent projections from the Congressional Budget Office, dated July 24, 2012. Page 14 of that document also notes that the ACA increases net spending on Medicare Part D—the prescription-drug program—by $48 billion over the same period. That $48 billion is counted toward the $716 billion in net cuts; i.e., Obamacare spends $48 billion more on Part D while cutting the rest of Medicare by $764 billion.

That report doesn’t break out the law’s new spending on preventive care within Medicare, because the amount is too small. For that figure, we have to go back to the CBO’s original estimate of Obamacare’s costs, dated March 20, 2010.
That report describes three spending provisions related to Medicare preventive care: Section 4103, “Medicare Coverage of Annual Wellness Visit Providing a Personalized Prevention Plan”; Section 4104, “Removal of Barriers to Preventive Services in Medicare”; and Section 4105, “Evidence-Based Coverage of Preventive Services in Medicare.”

In the period 2010-2019, the CBO projected $3.6 billion in new spending on wellness visits, $0.8 billion in new spending on “removal of barriers,” and $0.7 billion in cuts to evidence-based coverage, for a total of $3.7 billion over ten years. Given the fact that these spending changes appear to flatten from 2013-2019 (see the table below), we can safely say that the CBO’s estimates of net new spending on these programs from 2013-2022 is about $4 billion.

Hence, Obamacare’s increases in net spending on preventive care and the prescription-drug program amount to $52 billion from 2013-2022, according to the CBO. Offsetting this new spending is $768 billion in net Medicare cuts elsewhere, a ratio of 15 to 1.

Medicare’s ‘donut hole’ only affects 6 percent of seniors
According to the President, the key benefit of Obamacare’s increased spending on Medicare’s drug benefit is what it does for Part D’s “prescription drug coverage gap,” also known as the “donut hole.”
What’s important to remember about the donut hole is that only a tiny fraction of seniors are actually affected by it. 94 percent of seniors either have commercial prescription-drug coverage (39%), or are eligible for low-income subsidies (30%), or never reached the donut hole (25%).

Of the 6 percent that even came in contact with the donut hole, only 1 percent actually reached the catastrophic threshold; i.e., they spent through the entire amount of the donut hole. The majority of that 6 percent hit the donut hole, but paid a small amount in out-of-pocket costs.

If you want to be as generous as possible to the President on this point, you can further unpack Obamacare’s spending on Medicare Part D. The law spends about $70 billion from 2013-2022 on closing the donut hole. The law makes $22 billion in offsetting cuts to Part D, in part by increasing premiums for certain beneficiaries and removing funding for the program’s complaint system.

If you count the $70 billion in donut hole spending and ignore the $22 billion in offsetting Part D cuts, you get to a ratio of 11 to 1 instead of 15 to 1. But remember that the donut hole changes affect only 6 percent of seniors, whereas the remaining $786 billion in cuts affect everyone. So it’s fairest to use the $48 billion figure and the 15:1 ratio.

Yes, Obamacare’s Medicare cuts do affect current seniors’ benefits
Whether you decide Obamacare’s offsetting cuts are $768 billion or $786 billion, there can be no doubt that those cuts do affect seniors’ benefits. The President’s own Medicare actuary, Richard Foster, wrote in 2010 that the law’s substantial cuts to Medicare Advantage would “result in less generous benefit packages,” cutting Medicare enrollment by half.

In addition, by slashing payments to health-care providers, Foster projected that 15 percent of hospitals would become permanently unprofitable. It will become much harder for seniors to gain access to doctors, more and more of whom will bail out of the program due to its decreasing reimbursements.

There’s an intellectually honest case to make in support of Obamacare’s Medicare cuts. If you believe that taking money out of Medicare in order to expand subsidies of coverage for younger Americans is a good thing, then you have every reason to support what Obamacare did to Medicare. But it’s not intellectually honest to claim that these cuts are inconsequential, or that they’re offset by relatively trivial spending on “new benefits.” As President Obama recently put it, “You can’t just make stuff up.”


 

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