Bruce Bartlett: How to Start Dealing with Our Long-Term Medicare Cost Problem
Start by reducing Medicare payments to doctors to put the program on a sustainable trajectory.
BB:
The Real Social Security and Medicare Problem (and a Doable Fix): What really matters for the viability of both Social Security and Medicare is their aggregate costs relative to the economy’s ability to pay them. In this regard, it is best to look at spending as a share of the gross domestic product, especially in the long run.... Social Security... spending rising from 4.8 percent of gross domestic product to 6.2 percent by 2035, an increase of 1.4 percentage points.... [T]he long term Social Security deficit is 1.2 percent of G.D.P., or 3.6 percent of taxable payrolls.... Turning to Medicare.... Part A pays for hospital visits and is financed by the Medicare portion of the payroll tax, which is 2.9 percent... this portion of Medicare has virtually no long-term unfunded liability.... Part B, which pays for doctors’ visits.... It has no trust fund.... Finally, there is Medicare Part D, which George W. Bush and Congressional Republicans rammed into law in 2003. Even though Medicare’s finances were rapidly deteriorating, they provided no additional funding for Part D.... The unfunded cost of this program is estimated at $16.1 trillion, or 1.1 percent of G.D.P. in perpetuity. Thus we see that Social Security and Medicare are underfunded relative to promised benefits by $56.4 trillion or 3.8 percent of G.D.P. per year forever....
Medicare’s actuaries do not believe their own projections are realistic because they were required to assume that a key provision of current law will take effect as scheduled. This is known as the “sustainable growth rate” (S.G.R.) and involves implementation of a law enacted in 1997, but repeatedly postponed by Republican and Democratic Congresses. It would require a 29.4 percent cut in fees for doctors who treat Medicare patients on Jan. 1, 2012. The Medicare actuaries just don’t believe this provision will be allowed to take place because they think Congress will punt the ball once again.... But what if President Obama and House Speaker John Boehner agreed, as part of negotiations on raising the debt limit, to let the this cut in Medicare fees take effect as current law requires? That would cut Medicare’s costs very substantially over current policy – something Mr. Boehner has demanded as a price to prevent the Treasury from defaulting on the debt. The virtue of this approach is that no one has to do anything – the sustainable growth rate is already in law. All our leaders have to do is promise not to change the law and instead allow it to take effect on schedule.
The doctors will scream bloody murder and threaten to stop treating Medicare patients. It will be ugly.
But everyone knows that Medicare needs to be cut, and as the biggest contributor to long-run deficits, doing something meaningful to reduce spending on this program will demonstrate resolve and commitment to deal with entitlement spending... it would be a solid first step on finding a bipartisan approach to dealing with the deficit.
