Congress's Medicare Canary

WASHINGTON-Pity the nation's seniors. Just as the first baby-boomers (born in 1946) are preparing to sign up for Medicare in 2011, Congress has cut the fees that Medicare will pay to physicians, ensuring that docs take fewer Medicare patients. Or has it?

The Senate has approved a bill to delay until November 30 cuts of 21% in Medicare payments to doctors, cuts that just went into effect. And the Senate also voted to give doctors who participate in Medicare a 2.2% fee increase.

This action, by voice vote with the leadership on both sides of the Senate aisle in accord, illustrates a dilemma that Congress seems to be unable to resolve: its sense of fiscal discipline, which tells the lawmakers to reduce Medicare spending, and its disinclination to take actions that will raise the cost of health care for seniors - and reduce the quality and availability of care.

For, if Medicare pays doctors less, they are likely to perform extra tests or services, marking up balances for which the government is billed, or to withdraw from Medicare, as more and more physicians have done in recent years.

For example, before the cut, a Manhattan anesthesiologist's time was reimbursed at $91.60 per hour. Now that the cut has taken place, the anesthesiologist earns $72 per hour. That's less than it would cost to hire a plumber or an electrician, whose training costs a fraction of medical school fees. There is no way those doctors can passively absorb such losses of income.

Will the House approve legislation like the Senate's? So far, Speaker Nancy Pelosi has balked as she seeks to hold Medicare fees hostage to induce deficit-shy Senate Democrats to vote for a House-passed "jobs" bill that would increase the deficit by $134 billion over 10 years, including $33 billion for infrastructure spending.

The House bill would increase Medicare physicians' fees by 1% through December 31, 2011, freeze them in 2012 and 2013, and then reduce them by 35% in 2014 to approximately the level they would have been in the absence of the 2010-2013 increase. This would cost $65 billion over the next five years.

This is yet another example of budget gimmickry. No one expects Medicare physician reimbursements to be reduced by 35% in 2014.

The best guess on Capitol Hill is that sometime this summer Congress will approve a retroactive suspension of the Medicare fee cuts (and doctors will have to resubmit their bills to Medicare to collect the remaining payments).

This is not just a drama for 2010. It will play again next year and presumably perennially well into the future as Congress tries to conquer the rising cost of Medicare (being driven up by those new beneficiaries, the Boomers) without saddling seniors with much bigger out-of-pocket bills.

To create the appearance, if not the future reality, of fiscal discipline in the health care bill enacted in March, Congress assumed $455 billion of Medicare and Medicaid cuts - 73% of them in Medicare - over 10 years, and thereafter 10% to 15% of annual cuts.

So, physicians' reimbursements affect not only doctors and seniors and Medicare's price tag, but also the cost of the new, national health-care plan, which the Congressional Budget Office - using the nominal terms of the bill, as it must - estimated would reduce the budget deficit by $143 billion over 10 years.

Freeing Medicare physicians from future cuts could cost $250 to $400 billion over ten years, depending on how much the government allows doctors' payments to rise.

And the projected cost of Medicare is staggering. According to the 2009 Medicare trustees' report - the 2010 report has been postponed, ostensibly to incorporate the effects of the new health care law - Medicare's unfunded obligation over the next 75 years is $38 trillion.

If Congress regularly overrides an existing law requiring Medicare payments to doctors to be cut when the program is in deficit, as it is today, why should the new law be any different?

America needs to confront the problems of Medicare and find a solution.

Here's one idea. Wisconsin Republican Congressman Paul Ryan, the ranking Republican on the House Ways and Means Committee, has proposed that Americans currently over the age of 55 keep the current Medicare plan when they reach retirement. But those now 55 and under, when they retire, would receive refundable tax credits to choose any health care plan, not just Medicare. People with lower incomes would receive larger credits.

According to Galen Institute president Grace-Marie Turner, "Medicare Part D gives seniors a choice of private competing prescription drug plans. By employing consumer choice and private competition, the program is costing 40% less than analysts had projected. This is the structure that Mr. Ryan's Roadmap would use to put the Medicare program on a path to solvency."

Mr. Ryan's plan is part of his overall effort to transform health care into a more consumer-driven system by giving all Americans refundable tax credits to purchase insurance - $2,300 per individual and $5,700 per family - paid for by removing the tax-free status of employer-provided health insurance. Just as Americans choose their auto and home insurance, they would also choose their health insurance, negotiating discounts for healthy behavior.

Today's physician reimbursement debate is the canary in the coal mine for Medicare - a warning of serious problems that are just around the corner. The sooner Congress comes to grips with this problem, the better for all of us.