A Bad Sign For Deficit Reduction

Earlier this week, the Obama administration reversed cuts to Medicare Advantage. Philip Klein puts the decision in context:

Medicare Advantage is an early test for Obamacare. The program gives beneficiaries the ability to gain private coverage that offers benefits beyond traditional Medicare and currently has nearly 16 million enrollees. A 2012 CBO report finding that that Obamacare reduced deficits by $109 billion over 10 years also found that the bill produced $156 billion in Medicare Advantage savings from cutting payment rates. In other words, under that CBO estimate, doing away with Medicare Advantage savings – with all else being equal – would mean that Obamacare would go from reducing deficits to increasing them.

Waldman is candid about the political calculations involved:

The administration had proposed at 1.9 percent cut to the program in 2015, but now they’re actually going to increase it by .4 percent. I’m not defending the administration’s reversal. I’m sure officials will come up with a justification (“strengthening the program” is the standard one), but the truth is that this is about politics.

Democrats in both houses who are vulnerable in this year’s elections joined with the insurance companies to pressure the administration, because they could already see those ads in the fall: “Senator X did nothing while the Obama administration cut your Medicare!” In a political campaign, you aren’t going to get far trying to explain the details of why it would be smart policy. So the administration gave in.

Suderman notes that this has happened before:

This is not the first time that Medicare Advantage cuts have conveniently transformed into increases. Last year, CMS initially proposed a 2.2 percent cut—which, over the course of a few months, evolved into a 3.3 percent hike. In both years, what happened between the initial proposal and the final was the same: an intense lobbying campaign by insurers who get paid by the program, as well as heavy political pressure from both sides of the aisle.

Edwin Park urges Congress to allow Obamacare’s Medicare Advantage cuts go into effect:

In response to yesterday’s announcements, leading Senate and House Republicans immediately called for scaling back or repealing health reform’s Medicare Advantage savings as well, warning of substantial harm to enrollees. But, as my colleague Paul Van de Water told Congress last month, claims that Medicare enrollees will face much higher costs and lose their choice of plans are highly exaggerated.  Moreover, curbing overpayments is sound policy, lowering premiums for all beneficiaries and extending the solvency of Medicare’s trust fund.

Policymakers should thus reject any attempts to undermine health reform’s Medicare Advantage savings.