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One more time with the Medicare 'doc fix'

At the fiscal summit today, Rep. Paul Ryan argued again that the Affordable Care Act is a deficit-buster because the cost of the Medicare doc fix wipes out the savings from the bill. This blog has talked a lot about the doc fix issue, but understanding the Republican obsession with the doc fix is important to understanding the argument over the fiscal responsibility of the Affordable Care Act. So let's kick this old school. And yes, when I say "old school," I mean March of 2010-style.

The easiest way to show that a bill increases the deficit is to show that revenues don't equal or exceed spending. That was true for, say, the Iraq War and the Medicare Prescription Drug Benefit and the Bush tax cuts. It is not true for the Affordable Care Act.

So Republicans have had to come up with a way to change the arithmetic. That gives them two options: Either delete something that's in the bill on the revenues side or add something that's not in the bill onto the spending side.

The first strategy has found expression in the arguments saying that the law's savings and taxes won't be implemented. That argument inflicts a lot of collateral damage, however. It means Congress can't pay for bills it passes, and that's as destructive to Republican priorities as to Democratic priorities. It's also a message to the bond markets that we can't pay back our debts and the price of U.S. treasuries should shoot way up. If Congress can't be trusted to follow the laws it passes, then we should all give up and go home. Or maybe move to Greece.

The second strategy has centered around the "doc fix" argument. In 1997, the Republican Congress wrote and passed the Balanced Budget Act, and President Clinton signed it into law. Tucked deep in the bill was a provision setting a "sustainable growth rate" for Medicare: The provision, written by the Republican chairman of the Ways and Means Committee, mandated cuts to doctor payments if the program's spending rose above a certain level.

The provision wasn't expected to save much money or be a very big deal. But the formula was based on bad assumptions, and soon SGR was requiring massive cuts. Democratic and Republican congresses alike have been delaying the cuts ever since.

Repealing the SGR formula and thus putting a more realistic estimate of Medicare's future costs into the budget is what people mean when they talk about the "doc fix." Importantly, though, it exists independently of health-care reform. To offer just one example of the Republicans understanding this when it suits them, consider that the Medicare Prescription Drug Benefit in 2003, which was passed by a Republican Congress, included a temporary fix. They did not, however, actually fix SGR, and nor did they add its cost into their bill, which is what they're saying Democrats need to do now.

But if this was around in 2003, how can it actually be part of health-care reform, which wasn't written until 2009? The answer is that it isn't. If we'd never passed the Affordable Care Act, we'd have still needed to pass the doc fix, just like we'd still have to pay for Medicaid and fund the continuing operations of the Department of Education. The government has its commitments, which are part of the baseline, and then there are new policies, which change the baseline. The doc fix is a baseline issue. The Affordable Care Act is a new program.

And that's where the trick of this argument comes in. When we say that something saves money, we're comparing it to a budgetary baseline. That is to say, we expect to spend this much (baseline) and the Affordable Care Act will change it by that much. The "doc fix" issue is an argument over that baseline: The reason we need to repeal SGR is so our budget projections are true to our actual spending. But if you add the doc fix into the baseline, then the Affordable Care Act ... saves the same amount of money.

What some Republicans are trying to do is add the doc fix into the Affordable Care Act. That is to say, they are trying to add the repeal of a Republican policy passed in 1997 into the cost of a Democratic bill being passed in 2010. But that's a bit like adding the cost of the Iraq War onto the bill, or maybe the Bush tax cuts. It's true that those were misguided, costly policies. But they're not part of the Affordable Care Act. They're part of the baseline that the Affordable Care Act changes.

As it is, the bill cuts the deficit by a little over the first 10 years and a lot over the second 10 years. The efforts to argue otherwise require suspending all the normal rules and saying either that Congress can't credibly offset legislation that costs money, which destroys the Republican agenda as surely as the Democratic agenda, or adding policies to the Affordable Care Act's price tag that don't belong there.

By Ezra Klein  |  April 28, 2010; 1:57 PM ET
Categories:  Health Reform  
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If the premise is wrong, the result is a lie.

Posted by: RayOne | April 28, 2010 2:08 PM | Report abuse

Ezra, perhaps this is fodder for a follow up, but I believe that the President's 2011 budget contains projections that try to get around the faulty baseline assumption of the SGR by assuming instead that reimbursement rates for 2010-20 will be frozen at 2009 levels. That is also probably not accurate, but it is closer to reality than assuming the SGR numbers.

Posted by: StokeyWan | April 28, 2010 2:20 PM | Report abuse

Arithmetic helps with budget issues.

For example, Montana is tasked with creating a high-risk pool for its residents and will receive $16M in federal funds to help establish the program. The $16M is estimated to cover 400 people for 3.5 years. To get the $16M and other Medicaid funding, Montana must, by 1 July, cover all people who’ve been without health coverage for at least six months because of a pre-existing health condition. Currently, Montana has 3,000 people enrolled in the state-based high risk pool which existed prior to March 2010.

Two questions. First, why were 400 participants estimated by federal level bureaucrats when 3,000 were known to exist? Second, what happens to the federal deficit after July 1 when a litigant demands from the federal government the coverage now a guaranteed entitlement?

Posted by: rmgregory | April 28, 2010 2:27 PM | Report abuse

Exactly right!

Posted by: rgwilliams | April 28, 2010 2:36 PM | Report abuse

"Affordable Care Act.." Constant repetition of that name may help. It certainly will help Klein.

Posted by: truck1 | April 28, 2010 2:38 PM | Report abuse

@Truck1, it also has the benefit of being the actual name of the law.

Posted by: StokeyWan | April 28, 2010 2:53 PM | Report abuse

It's not complicated. Ryan is either lying to himself or us when he continues to insist that the Affordable Care Act is somehow responsible for the costs associated with the doc fix.

I don't know if Ryan is dishonest, a fool, or a dishonest fool, but either way, he's a disaster.

Posted by: cjo30080 | April 28, 2010 3:00 PM | Report abuse

Why does my mind keep telling me that everyone who opposes healthcare reform here has health insurance...hmmm

Posted by: Swerve10 | April 28, 2010 3:03 PM | Report abuse

I think the more accurate comment is to say that the ACA itself (getting to be an overloaded acronym with $GS/SEC) should not just be viewed holistically. It made a set of revenue expansions, revenue reductions, expenditures, and cuts in planned expenditures.

If the bill says we are going to reduce per person Medicare expenditures from X to Y in year Z, but those estimates were based on the inclusion of SGR.

Posted by: staticvars | April 28, 2010 3:23 PM | Report abuse

Ezra writes:

"the arguments saying that the law's savings and taxes won't be implemented. That argument inflicts a lot of collateral damage, however. It means Congress can't pay for bills it passes...If Congress can't be trusted to follow the laws it passes, then we should all give up and go home."

Does no one else see the hilarious irony in Ezra making this point in the context of the doc fix, which is a key example of Congress not being able to follow the laws it passes?

He also says:

"The provision wasn't expected to save much money or be a very big deal. But the formula was based on bad assumptions, and soon SGR was requiring massive cuts. Democratic and Republican congresses alike have been delaying the cuts ever since."

Yet he portrays the people who say the ACA will cost more than the Democrats say because of bad assumptions as unrealistically cynical.

Posted by: ab13 | April 28, 2010 3:43 PM | Report abuse

And Ezra, I don't recall that you've ever addressed the fact that the ACA sets up yet another "doc fix" a few years from now. A large portion of the additional people insured under this bill are being added to Medicaid. But for that to work they need to get more docs to take Medicaid patients, so for 2 years they bump Medicaid reimbursement up to Medicare levels, after which they revert back. Do you really think they're going to let this huge fee cut happen as the bill says? And if they don't what do you think happens to all of those new Medicaid patients?

Posted by: ab13 | April 28, 2010 3:46 PM | Report abuse

I think Ryan's point is that the Democrats have funded a new entitlement with the low-hanging fruit of savings in non-physician Medicare payments which could have been used as offsets for the doc fix.

It's a flimsy argument, because you could also claim the savings could be used as offsets for anything else. But I've never interpreted Ryan to mean that the doc fix was caused by the ACA.

Posted by: jmorton2 | April 28, 2010 4:02 PM | Report abuse

To counter Mr Klein's argument just look at the Congressional record in the recent past. In two widely publicized instances single Republican senators stood in opposition to bills. Their opposition was based on the failure of congress to adhere to its own "paygo" rules.

If congress can't do that even once, there is simply no reason to assume that they will get the physician payment change done. There never was. If there is cyncism in this, it is originating with Mr Klein and his fellow spend thrifts in congress.

Posted by: skipsailing28 | April 28, 2010 4:21 PM | Report abuse


I understand what the 'docfix' is, and why it doesn't belong in the costs of the bill but what I don't get is why we "NEED" to implement a fix to this policy.
As I understand it, it limits payments to our doctors. Every analysis I have read says the U.S. overpays their doctors and that is one of the issues causing the run away spending which all would agree this bill doesn't do enough to fix.
Congress doesn't have the will to make hard choices, why not just throw up their hands and say "wasn't us" and let the doctors make less?
I understand my question is a little dumb, I suspect there is a good reason for not doing that. I would like to know what that reason is.


Posted by: chrynoble | April 28, 2010 4:36 PM | Report abuse

Ezra, excellent summary of doc fix and why and how it's being used to benefit GOP talking points. Ezra, this might be your best post on this blog.

Posted by: Chris-TheFold | April 28, 2010 4:41 PM | Report abuse

Fourth paragraph: I think you mean the interest rate on U.S. Treasuries will shoot way up and the price will drop. Since prices move inversely to interest rates on bonds, a lack of investor confidence will usually translate to lower bond prices and higher interest rates to compensate the investor for the perceived risk.
Excellent post.

Posted by: petekg | April 28, 2010 4:50 PM | Report abuse

Shorter Ezra: Congress didn't stick to the spending limits they set with the SGR, but this time they promise they'll really do it!

Posted by: ab13 | April 28, 2010 5:07 PM | Report abuse

Good post, Ezra. I'm afraid your conservative critics are never going to buy in for a simple reason. They can not fathom that the US Government can control spending and live within a budget. They certainly can't fathom the Democrats doing so.

Reality and a simple reading of history show that they are simply stupid on the subject (the US ran a surplus during the Clinton presidency and the Reagan/Bush II budgets were notoriously out of whack), but this belief is absolutely critical to their world view. You might as well be arguing with a brick.

Posted by: danimal1 | April 28, 2010 5:38 PM | Report abuse

1) PPACA is going to go over budget from the get-go, starting with the high-risk pool. That's the assessment of the CMS actuary.

2) It is not universally accepted that the doc fix was based on flawed assumptions. That's an AMA talking point. It only resulted in "massive cuts" because the small annual reductions were never adopted. Furthermore, the Medicare population has increased significantly during the SGR period.

Posted by: bmull | April 28, 2010 9:13 PM | Report abuse

ab13: "Does no one else see the hilarious irony in Ezra making this point in the context of the doc fix, which is a key example of Congress not being able to follow the laws it passes?"

The fact is that's it's not the "key example." It's the exception.

"But the Center for Budget and Policy Priorities released a study last year that turns that wisdom on its head. Congress has a good record of implementing Medicare savings, the authors found, and the SGR, which wasn't supposed to save much money anyway, represents an exception that conservative critics have turned into the rule."

So since it's an exception, there is no irony. Perhaps there's good reason not to generalize based on a sample size of one. Unfortunately, ideology and selection bias (which we all have to some extent) lead some of us to generalize based on a single data point when it's not proper to do so.

Posted by: dasimon | April 28, 2010 10:39 PM | Report abuse

You are completely wrong. The prescription drug program was a new program and had nothing to do with the SGR formula.

The Affordable Care Act was supposedly "comprehensive healthcare reform" meant to fix the entire healthcare issue. It should have fixed the SGR issue.

And now that the administration (HHS) has finally done some analysis, they have found out what most intelligent people already knew - it will cost money. Most people realize you don't have to raise taxes to pay for a bill that saves money - must be the "new math" the liberal teachers are indoctrinating our kids with.

Posted by: jaa123 | April 29, 2010 6:19 AM | Report abuse

jaa123: "Most people realize you don't have to raise taxes to pay for a bill that saves money - must be the 'new math' the liberal teachers are indoctrinating our kids with."

The claim is not that the bill "saves money" in terms of overall spending; it's that it reduces the debt. Expenses will continue to rise as more people go on Medicare, but they won't go up as much due to spending "cuts." And of course it "costs money" to provide subsidies for those who can't afford market rates for insurance. But overall, the combination of reducing the per-person health care costs and the slight tax increases mostly on the wealthy are projected to more than cover the additional people receiving care and subsidies.

Anyway, the point of the article is not whether or not the Affordable Care Act raises or reduces the deficit (even though the CBO says the latter); it's whether the "doc fix" should be included in making that determination. If one cares about deficit reduction, it certainly seems better to support the Act than oppose it. And there are plenty of other programs that would reduce the deficit if cut, including some that are medically related (say, Medicare Part D), but we don't include them in doing the math for this Act, do we? So why the doc fix?

And I don't think the Act was supposedly "comprehensive healthcare reform." It's not nationalized health care. It's not single payer. There's not even a public option. It relies on private insurers and does not dramatically change delivery systems. It has more insurance reform than overall health care reform. It does have modest proposals for getting costs under control and does provide for greater coverage. Few people pretend that there won't be a lot more to do to get a handle on our health care issues.

Posted by: dasimon | April 29, 2010 9:55 AM | Report abuse

Breaking news! Canadians live 3 yrs longer than americans due to universal health care.
I got yer data right here!

Posted by: rjewett | April 29, 2010 2:00 PM | Report abuse

dasimon, Medicare growth slowed in the 90's (along with health care spending in general) because of the rise of managed care. Saying "they stuck to the changes in the 1990s" without mentioning the external changes that made that far easier to do is disingenuous. Congress didn't face the tough choices of having to make unpopular decisions about Medicare spending like they do with SGR and like they will with this bill. And they've created a nearly identical issue to the doc fix with the temporary Medicaid reimbursement changes.

Posted by: ab13 | April 29, 2010 2:21 PM | Report abuse

ab13, the main point is that SGR is a separate issue from the Affordable Care Act. Pointing out that Congress has repeatedly suspended the (apparently ill-thought out) cuts in one program doesn't mean that the other program doesn't reduce the deficit. We refuse to stop servicing B-2 bombers, but we don't hold that against the ACA. SGR is going to be a problem with our without the ACA. It's similar to the problem with the Alternative Minimum Tax, which also gets a yearly "fix." If a bill passed that raised taxes, I don't think it would be valid to criticize it as not helping with the deficit problem just because the AMT issue hadn't been resolved. In terms of the deficit, the tax hike would help regardless of what happens with the AMT.

The argument that special circumstances applied in the 90s is addressed in the link I provided above. One can disagree with the argument, but it's hardly disingenuous (because it is addressed and not avoided). Furthermore, regardless of whether one agrees with the argument or not, it's always risky to generalize from a sample size of one--which is what SGR represents. You could be right, but the claim that Congress never sticks to budget cuts seems to me to be an overstatement--otherwise, why would we continually hear complaints about Medicare's low reimbursement rates?

Moreover, the cited report claims that "The SGR mechanism has little in common with most of the other provisions that Congress has enacted over the years to produce savings in Medicare and that have, in fact, taken effect." Again, one can disagree with the analysis, but it's worth investigating.

Posted by: dasimon | April 29, 2010 2:40 PM | Report abuse

As you point out, the cost of fixing the flawed Medicare physician payment formula is simply not a part of the health reform bill. The problem existed before health reform and it lingers on awaiting a solution. Both the House and Senate have emphasized the importance of this issue by passing PAYGO waivers for a portion of the cost of repealing the formula, and the AMA urges Congress to quickly take permanent action. Congress is currently dealing with this year's 21 percent cut by delaying it on a month-to-month basis. This precarious situation leaves both physicians and patients in limbo as they wait for the other shoe to drop. Replacing the current formula with one that better reflects medical practice costs will shore up Medicare's physician foundation and allow doctors to plan to care for Medicare patients. Continuing to address the problem with band-aid fixes increases the size of the cuts and has more than quadrupled the price of a solution for taxpayers. The longer Congress procrastinates on tackling this issue, the bigger the price tag for America's taxpayers.

Posted by: AmericanMedicalAssociation | April 29, 2010 3:47 PM | Report abuse

@dasimon: "the main point is that SGR is a separate issue from the Affordable Care Act."

I never claimed that it wasn't. I don't know why you're going on about a claim that I never made. All I've been saying is that the "doc fix" is a good example of Congress refusing to make difficult choices to get health care spending under control. And now they've created a bill which says "on some future date we'll make difficult choices, but for now we'll just do the popular and easy stuff". It's not at all unreasonable to be extremely skeptical of that. And the claim that they've supposedly done it in the past ignores the special circumstances that made it much easier to do so, circumstances that we cannot count on happening again just when we need them.

-----"The argument that special circumstances applied in the 90s is addressed in the link I provided above."

No, it's not addressed. Van de Water just says "I mean it's always possible that there were some unique circumstances. But I think the evidence is such that people who think that future Medicare cuts might not stick have to posit special circumstances."

His first sentence it a cop-out, and the second one is misguided. The people who are saying the cuts will stick are ignoring the special circumstances, those of us who disagree don't need to posit anything of the sort. To analogize, this is like someone telling you he'll hit a home-run because he's done it before, but he fails to mention that it was off a tee and in a little league park.

-----"it's always risky to generalize from a sample size of one"

I'm not generalizing from a sample of one. It's a very good example, but in general our gov't has shown a very poor ability to control Medicare spending, and an extreme reluctance to do anything that would upset elderly voters. They don't take things away from senior citizens, they keep giving them more.

-----"why would we continually hear complaints about Medicare's low reimbursement rates?"

Because Medicare underpayment is not universal. There are ways to make a lot of money providing care for people on Medicare. But because we've shown a complete inability to control overall Medicare spending, in many cases the reimbursements are too low. It's not at all inconsistent to hold the belief that Congress cannot control Medicare spending but also that Medicare underpays for a vast number of services.

And still nobody has addressed the new doc fix they've created in Medicaid. I'd love to see someone make an argument that it will actually happen, and try to explain how this can happen without a mass exodus of docs from accepting Medicaid patients, leaving all those new "insured" people no better off than before the bill.

Posted by: ab13 | April 29, 2010 4:19 PM | Report abuse

Well, ab13, I can come up with special circumstances for the present situation. I don't recall as much public pressure for reducing the debt during my lifetime as right now. And Medicare is the largest source of our long-term debt. So while there will be pressure on Congress not to follow through, there will be countervailing pressure as well. I can't say with confidence which will prevail, but I don't think anyone else can either.

Moreover, all of our peer nations seem to have been able to keep their growth rate of medical expenditures below ours (while maintaining similar if not better heath outcomes and spending far less), and they face the same demographic issues as we do. Again, I can't guarantee that result, but if they can do it, there's no inherent reason why we can't do it too.

Finally, I still think it's a mistake to use the doc fix as the prime example of government inability to follow through on spending cuts, since it seems to be spectacularly poorly thought-out.

"It's not at all inconsistent to hold the belief that Congress cannot control Medicare spending but also that Medicare underpays for a vast number of services. "

It may not be inconsistent, but it does mean that Medicare does better at holding down costs than private insurance since seniors don't seem to complain about access to procedures and providers. And since Medicare spending varies tremendously across the country even between regions with the same demographics that have no difference in patient outcomes, it would seem that there are substantial savings that can be had.

Posted by: dasimon | April 30, 2010 1:20 AM | Report abuse

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