How We Can Solve the Doc-Fix Budget Dilemma
Congress is not just working on the budget for 2016, but also on a multitude of other important issues. One that is important to some people directly and to all taxpayers indirectly is what is known as the "doc fix." Under a nearly forty year old law meant to keep Medicare fiscally sound, Medicare payments to doctors are supposed to be limited to the "sustainable growth rate" which would subject doctors to big cuts in their reimbursement rates. In all but a few years, Congress has suspended the cuts, usually finding the money somewhere to offset the impact of the higher doctors' payments on the budget. According to reports of a deal supposedly near completion between Speaker Boehner and Minority Leader Pelosi, this year may break that tradition.
Repealing the cuts mandated in the law will cost $137 billion over 10 years according to the Congressional Budget Office. Reportedly, this cost will not be paid for, but simply added to the deficits over the next decade. In fairness, given the frequency with which Congress has suspended the cuts over the years, this may be more truth in budgeting than an actual increase in the future deficits.
According to the reports, Congress is also planning to provide doctors with small increases in their payments over time, increases that CBO says will add another $37 billion to the cost of Medicare over the next decade. This will supposedly be paid for somehow, but no details are available at this writing. Here are a few possibilities, because at the end of the day someone is sure to be handed the bill.
Medicare part B premiums are designed to pay about 25 percent of the cost of Medicare. Thus, those premiums can be expected to rise by around $9 billion over 10 years. This would be only about a 1.4 percent increase in premiums, coming to about $1.50 per month. That certainly seems affordable and is probably beneficial to the Medicare participants because it will encourage more doctors to accept more Medicare patients.
That leaves around $28 billion still to be paid for somehow. Raising the Medicare payroll tax from 2.9 to 2.95 percent would be one way to cover the rest of the cost. Another option would be a tiny 0.3 percent increase in personal income taxes. Alternatively, Congress could find $28 billion in spending cuts over the ten year period.
A simple option, which has the advantage of putting most of the burden on the seniors who are using Medicare would be to switch to a chained CPI in computing the increases to entitlement programs. This would mean slightly smaller annual raises in Social Security, but it would save the amount necessary to pay for the rest of the doc fix.
Possible unrelated spending cuts of the proper size that have been previously suggested by others include: a roughly 10 percent cut in foreign aid or ending maintenance on unused government jets. If just 10 percent of vacant federal buildings were sold off, the saved maintenance expense would cover the rest of the increased cost in Medicare costs while the money collected from selling the buildings could be directed to reducing the national debt.
Additional options to consider would be about a four percent cut in the budget of the Department of Housing and Urban Development, a 20 percent cut in the travel budget of federal government employees, or the privatization of Amtrak and an end to rail subsidies. Any of these policy choices would do the trick.
What this exercise shows is that paying for the doc fix is certainly possible; none of the proposed offsets seems overly daunting or overly burdensome to the effected parties. Another obvious conclusion from this column is that there is still plenty of fat in the federal government. With rumors that Congress wants to repeal the sequester and increase spending, perhaps by as much as $100 billion annually, it is useful to remind ourselves (and Congress) that plenty of spending cuts are waiting for somebody to vote for them and save the taxpayers some money.
If people don't like any of the methods I suggested above to pay for the doc fix deal-in-the-making, they have two obvious options: oppose the doc fix and let payments to doctors treating Medicare patients get smaller or propose a different alternative to pay for the increases in Medicare reimbursement rates.
It is also worth noting that without the two tax increases mentioned, adoption of all six spending cut options listed above plus the extra $1.50 per month in Medicare part B premiums would pay for the entire doc fix-the cancelling of the sustainable growth rate law and the small increase in payment levels for doctors-all $174 billion. Thus, if Congress really wanted to be fiscally responsible, above is one recipe showing how to use a set of small budget changes to pay for a big, expensive policy change.
Perhaps the biggest lesson here is that the federal budget is so bloated with waste and unnecessary expenses that finding cuts is simple; there are plenty to choose from. If Congress wants a bipartisan deal on a permanent solution for the annual doc fix, then the least they can do is pay for it.
