Medicare Actuary Report Means Little in Overall Reform Context

In politics, perception is everything. So when Richard Foster, the chief actuary for Medicare, said on Friday that the Senate reform bill would raise, rather than lower, healthcare spending over the next 10 years, Republicans went ballistic and Democrats went on the defensive. But before the rest of us get carried away, let's bear a few basic facts in mind: 1) Foster was talking about overall healthcare spending, not Medicare costs (the government deficit would decline as a result of the proposed reforms, according to the Congressional Budget Office); 2) nobody can measure the potential impact of the delivery-system reforms in the proposal; and 3) the amount by which Foster said reform would increase total health costs is miniscule.

That's right, $234 billion over 10 years is miniscule compared to the amount that we are expected to spend on healthcare over that period, which is $35.5 trillion. You read that right: $35.5 trillion, of which the increase attributed to reform is just 0.7 percent. That's not a bad bargain, considering that reform legislation is expected to cover an additional 31 million people.

The real problem is not that health costs will go up slightly, but that they won't drop dramatically unless we take much more draconian measures-which the Democrats are unwilling to do, and the Republicans wouldn't tackle either, if they were in power. Any serious effort to lower health costs is inevitably branded as "rationing." Thus tests of ideas like payment bundling and accountable care organizations are as far as the reform legislation is likely to go in this direction.

Another problem is that the Senate bill, to a greater extent than the House legislation, leaves many people unprotected from catastrophic medical costs. Let's set aside the fact that an estimated 24 million people would remain uninsured in 2019. The Senate measure includes language that would allow insurance companies to place an annual limit on the amount they would spend on healthcare for people with serious illnesses like cancer or heart disease. Consumer advocates are angry, especially in light of the fact that President Obama specifically called for eliminating annual caps on insurance.

Then there's the small matter of how much it would cost the uninsured to buy a plan similar to those offered in the Federal Employees Health Benefit Program (FEHBP). Under this concept, a substitute for the public option, the Office of Personnel Management would negotiate with private insurers to provide a couple of plans to the uninsured. The catch is that by 2016, a Blue Cross Blue Shield PPO that is a popular FEHBP plan would cost a family $20,000. Even after a federal subsidy, a family of four with the median household income would have to pay $825 a month for that plan. And for people aged 55-64 to "buy in" to Medicare-another proposal that's on the table-an individual would have to pay $7,600 a year and a couple, $15,200. No subsidies would be available to them until 2014.

So the Senate bill, however it's amended, will still have serious flaws. But let's not throw out the baby with the bathwater just because of the Medicare actuary's report.