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New Republic’s Jonathan Cohn on where the Medicare cuts are coming from

Monday, November 30, 2009

HH: Joined now by Jonathan Cohn on the Hugh Hewitt Show. Jonathan is one of the editors at the New Republic. He blogs at the blog, The Treatment, which is devoted, a lot of it, to health care. Jonathan, welcome to the program, good to have you on.

JC: Oh, thanks for having me. Usually, you have my colleague, Jonathan Chait.

HH: Yeah, but Jonathan doesn’t know anything about football. So you’ve got to know more about…he’s from Michigan, so obviously, he’s probably grieving over the Buckeyes stomping of them again. Where did you go to college, Jonathan?

JC: Well, you’re going to find this hard to believe, I actually live in Ann Arbor, Michigan, so I’ve been mourning that myself. My wife’s actually on the faculty at the University of Michigan, so we’ve been pretty upset about that, too.

HH: Well, my goodness, you couldn’t have expected much more, could you?

JC: No, I mean, look, this is a rebuilding process, and you have a new coach and a new system. It’s going to take time to get the new players in. You know, I think, you know, we’ll see what happens next year. I think, you know, people expect to lose in a rebuilding process to Penn State, and they can live with losing to Ohio State. Losing to Illinois, I think, was a little tough. Losing to Purdue in Michigan was a little tough, and I think if that continues next year, maybe we’ll see some changes. But really, I really should defer to…

HH: Well Jonathan, for some clarity’s sake, though, when did your wife join the Wolverine faculty?

JC: Oh, it’s been a while now, seven, eight years ago.

HH: So has she ever seen Michigan beat Ohio State, because it’s been seven years.

JC: Oh yeah, yeah. We actually went to the game, oh, what was it, ’03, ’02 when the last one was won in Michigan…

HH: ’02.

JC: …we were at.

HH: Okay, so you have seen, because I wanted to assure you and she that occasionally, it does rarely happen that Michigan pulls out a win.

JC: You know, we’re familiar. We know the history. You know, we know that in fact, it happens quite a lot, and we’re just being patient. I used to be…I’m a big Red Sox fan, so I’m used to long waits.

HH: Oh, my gosh. You’re like…one more strike, and you’re out, we can never have you back. You’re a Red Sox fan? Where did you grow up?

JC: It’s a long story, but I lived for a very long time in Boston, and I became a Red Sox fan.

HH: Now are you a Harvard guy?

JC: I am.

HH: What year?

JC: ’91.

HH: Oh, so you’re a kid. You’re young.

JC: Now I was excited that Harvard beat Yale in what admittedly was probably the most idiotic play call I’ve seen…

HH: I agree with that, but Jonathan, we never bring up Ivy League football on this, because we’re self-respecting, and we talk about real football here, even though…well, I digress. Let’s get to the subject matter at hand. I am genuinely interested in some answers. Later on in the program, I’m going to have Dr. Henry Aaron from Brookings on. I’m going to spend a lot of the next three weeks, and perhaps you’ll come back, trying to actually just figure out what the Senate bill, if it passes in its current version, would actually do to people. So let’s start there. How big are the cuts to Medicare that are coming?

JC: Well, first of all, I mean if you want to call them cuts, you can call them cuts. They…different people would call them smart reductions in overpayments. You have about $100-200 billion dollars, and it depends on how it comes out in the end of the debate, but you have a whole set of reductions in payments that now go to private insurance companies who service the Medicare population through what’s known as the Medicare Advantage program. Most of the experts who have looked this have said these companies are getting way too much money for the benefits they provide, and that’s money that…money spent on them is money not spent in the rest of the Medicare program. So a lot of the cuts that we’re talking about will come from just taking those overpayments back, saying look, you have to, we’re not going to pay you extra anymore just to subsidize this coverage.

HH: Okay, let’s pause on that for a moment. You said between $100 and $200 billion, which is a big range. What is it right now, if it were to pass without amendment?

JC: You know, I would actually have to look up the exact number, because it has changed. The numbers have changed so many times in the last couple of weeks. My recollection is it’s under $200, but closer to $200 than $100. But you know, I don’t have the number in front of me, so I don’t want to give you a bogus figure.

HH: Okay, and so what would that actually mean for people who are enrolled in Medicare Advantage? Whether or not it’s a good idea from the perspective of, you know, 30,000 feet, what about if you’re an enrollee in Medicare Advantage? What will those cuts do to you?

JC: Well, it depends. I mean, it depends on how those plans are going to respond. It depends on if the companies running them decide it’s still a worthwhile line of business for them or not. As it is, you know, we’ve been through this before. The companies that are servicing the Medicare population, they come in, they go out. They decide it’s worth it, it’s not worth it. This happens all the time, whether or not the levels are changing. I think it’s fair to expect that some of the Medicare Advantage programs are going to say look, you know, the insurers are going to say we’re not making a ton of money off of this anymore, so we don’t want to do this anymore. And some of them will probably pull out, and you will see people who have Medicare Advantage plans, they will, some of them will find that those plans aren’t as available as they used to be. But they will be able to go right back to the regular Medicare program, which will provide them with very good insurance, and not only good insurance, but remember, part of the reform plan we’re talking about is some of that money is being put back into closing the donut hole. So Medicare is actually going to get a little stronger than it was, even as we say to these companies look, we’re not going to continue to overpay you.

HH: But we believe in clarity on the Hugh Hewitt Show, so just…

JC: No, no, absolutely. And look, I mean, I don’t want to lie to you. I mean, some people with Medicare Advantage programs are going to find those programs are no longer there. That is going to happen. I mean, it’s almost certain, and that’s reality.

HH: And how many do we…

JC: But I think, you know, you can justify it.

HH: How many people do you think that is?

JC: Well, you know, there’s what, ten million people, I think, now currently enrolled in Medicare Advantage? It’s hard to know how many of those people are going to see their plans change. I don’t want to make a guess on that. The private market in these things is very hard to predict. And you’ve got to remember, the insurance companies who are doing this are constantly shuffling their entire basket of business. So how they treat that is going to depend in part on how they think the rest of their business is going to go. They’re going to be looking at the rest of the insurance market. Do they think that this is a stable arrangement going forward? I mean, you know, for an insurance company, they might very well be willing to say look, we’re going to make a little less money on this program going forward, but we also know that once these changes are made, it’s more stable, and so it’s a more permanent market, and it’s actually worth it for us to stay in it. So I mean, I don’t want to, again, I don’t want to give your readers a number that I’m just going to pull out of my head. Right now, around ten million people get Medicare Advantage. I would say it’s safe to assume fewer people will be in Medicare Advantage afterwards.

HH: And is it fair to say that for millions of Americans then, their benefits will be significantly diminished because of the changes in Medicare Advantage?

JC: No, I would not say significantly diminished, because I don’t think the benefits you get in these Medicare Advantage programs are significantly greater than what you get in the regular Medicare program.

HH: Now Jonathan, unpack that for me. If we don’t know how they’re going to respond, and we don’t know if they’re going to stay in, and we don’t know if there’s going to be a replacement, isn’t it fair to say that if you’ve got a universe of ten million, at least millions of Americans will have their benefits significantly diminished? Isn’t that a fair guess?

JC: Well no, because I mean, the part of your sentence there that I’m hooking onto there that I’m challenging is when you say significantly diminished. Going from a Medicare Advantage plan to, you know, going from there to Medicare Plus or supplemental policy does not equal a significant reduction in their benefits. What you’re getting with that Medicare Advantage plan is typically, there’s a lot of frivolous, I don’t want to say frivolous, but a lot of things like extra vision care, you hear about gym club memberships and things like that. And you get some extra help with cost sharing. They are not, according to most analysts I know, and most examples I have seen, they’re not a huge difference. They’re a better deal for some people, clearly, and that’s why people are enrolling in them.

HH: But that comes down to your judgment that it’s an acceptable cost, not to necessarily the consumer’s view if they like their prescription eyeglasses, and if they like their gym memberships, or if they like their fitness regimes. They’re not going to get that under the new plan, are they?

JC: Well, I mean, if you can still get those things.

HH: You’ll have to pay for them.

JC: I guess what I’m saying is this. As far as I’m concerned, most, any senior citizen can get what they need and then some. And Medicare, the basic Medicare package plus a basic supplemental policy gives you really good coverage.

HH: But if you’re a 1991 graduate, that makes you, what, 37?

JC: I wish. That makes me 40.

HH: Okay, 40. You know, a 65 year old might have a very significantly different view of that.

– – – –

HH: Jonathan, during the break, I got this e-mail from Dave. Dave is a finance professional in the medical field. About a third of his business is from Medicare. But he writes, “On a personal note, both of my wife’s parents, age 93 and 97, are in a Medicare Advantage program, Kaiser. I anticipate that they would receive a premium increase of hundreds of dollars per month, or go to regular Medicare and suffer a reduction of benefits.” Is that fair for him to say, Jonathan?

JC: Well, I don’t know about hundreds of dollars a month. It’s possible that premiums for Medicare Advantage might go up. I mean, it’s possible, you know, a company will say well, if we’re not getting these extra subsidies, then we’re going to try to just pass that extra cost onto the consumers. But you know, just to put everything in perspective, there was a study out there recently by Austin Frakt, who’s a very good economist. And he basically said that for every dollar that we pay into these, that we’re paying extra to these insurance companies, for every dollar, how much actually comes back out the other side as extra benefits? You know, I’m paying, I’m going to…let’s just say that the Hugh Hewitt insurance company, to take care of Medicare seniors, I’m paying you an extra dollar per person to take care of these people. What are you providing to the senior for that, the senior citizen? And the study found that about fourteen cents on the dollar, 14%, is actually going to extra benefits. So I’m spending 86 cents on the dollar to cover your extra marketing, your extra overhead, your extra, all the things you do as an insurance company. How do you justify that?

HH: Jonathan, that may be true. All I’m trying to do this week and next is to communicate accurately, which has not happened, what will actually happen to people if the Senate version passes, what will actually impact their life.

JC: Right.

HH: And I find that the left avoids that conversation like the Plague, or like H1N1, because they realize people don’t want to hear the truth, which is their benefits are going to go down, their costs are going to go up, and if you’re a doctor, your reimbursement rates are going to go down. Is that not the case about doctors?

JC: Doctors is a whole…I mean, the whole doctor scheduling gets very complicated, because it depends on whether you want to assume the cuts that are in the law are going to take place or not, or if those are going to be postponed.

HH: But those cuts are in the Senate bill, aren’t they?

JC: The Senate assumes, the Senate baseline bill assumes, as it is currently written, and this may change, I would not be surprised if it changes, the Senate bill as written does not change permanently what’s called the sustainable growth rate, which is this annual cut that’s supposed to get made every year, then nobody ever makes every year.

HH: But the deficit neutrality of the bill, the promise that President Obama has made, is premised on those cuts occurring, and they’re deep cuts, are they not?

JC: The Senate bill does assume those, although I think they added a one or two year fix at the very end.

HH: There’s a one year fix, I believe.

JC: It’s a one year fix. And look, I mean, if they’re going to fix it beyond that, then they’re going to have to come up with a way to pay for it.

HH: So it’s not really deficit neutral, is it?

JC: Oh, it absolutely is deficit neutral.

HH: So then let’s talk about those cuts which doctors are going to get in years two through 10. How deep will they be, Jonathan?

JC: Well, if you assume that the cuts that are in the law already, I mean, are you going to compare it to the baseline of what they’re already going to experience? Or just the cuts that are going to come down the pike this…

HH: If the Senate bill is…

JC: They’re already in line for those cuts.

HH: If the Senate bill is adopted, what will happen to these doctors reimbursement rates?

JC: Exactly the same thing that would happen if…after one year, the cuts would be postponed, and then after that, it would be the exact same thing that would happen under current law.

HH: And what is that exact same thing? How deep are the cuts?

JC: It is a set of very deep cuts.

HH: And are we talking…

JC: Most of us would argue we need to change that.

HH: But how deep are those cuts, as the bill is currently written?

JC: As currently written, if you were impose those cuts in two years, I’d have to look up the exact number, but I think it’s up to, what is it, 20% or something crazy like that?

HH: So if 20% reductions occur, as the Senate bill is premised on, and President Obama has promised to sign it, and it’s got to be deficit neutral, so let’s take the President at his word, will doctors leave the field in droves?

JC: No, because I think that we all know what’s going to happen is that when this cut is on the doorstep like every year, we will then postpone it another year, and find some way to pay for it, which is exactly what we should do.

HH: So what number are we talking about in additional taxes will have to be found to postpone the cuts you say we shouldn’t believe, even though the President has promised to make them?

JC: Well, if you want to look at…I mean, you know, you look at the House bill, for example, and what they eventually do is they do try to fix this, and they break it out. The cost over ten years of doing this, and again, this is exactly the cost, I would say this is a cost we are going to pay no matter what. Pass the bill, don’t pass the bill, this is a cost that we are on the hook for. It comes to, again, it depends on how you want to do the numbers, between $100 and $200 billion dollars.

– – – –

HH: Jonathan, you were going to tell me how much are the cuts to Medicare Advantage in the present iteration of the bill?

JC: Yes, yes. And now the reason I couldn’t remember if it was closer to $100 or $200 billion is because the House and the Senate actually have different numbers. The House number is around $180 billion, so that’s closer to $200 billion. The Senate’s actually lower than I remembered. It’s closer, it’s around $120 billion.

HH: Okay, if it’s only $120 billion, where are they going to get the other $300-400 billion dollars in cuts to Medicare?

JC: Well, you know, most of these are changes, they’re sort of stacked one on top of the other, lots of little changes in the way that Medicare pays for health care. And the good news here is that as opposed to the past, now we’ve made cuts to Medicare in the past, and we’ve actually, contrary to what you may have heard, you know, we made cuts, and we actually let them stand. But in the past, often, you know, we wanted to cut Medicare spending, because we decided that the program was too expensive. We were just going to whack off, you know, the top 5, and say oh, we’re just going to cut payments, period. These changes are targeted to do very specific things, because we have…one thing we’ve learned, and really, it’s in the last ten, fifteen years, we’ve become aware of this, is that we waste a ton of money in our health care system. You know, we waste money because we send people with chronic disease to ten different doctors, when they’d be better off having two or three that communicate with each other well. And we pay hospitals the same, even if some hospitals clearly aren’t doing a very good job, and have a high rate of something like hospital infections, which is something that no hospital should have. There’s no reason you have to be…any rudimentary hospital can all but cut out in-hospital infections if they just follow the right procedures. So the changes that we’re going to see in Medicare are things like we’re going to start penalizing hospitals if they have high rates of inpatient infection. We’re going to take away, we’re going to say we’re not going to pay you as much for treating this patient, because you did a lousy job.

HH: But now that would be preventative, and hopefully they would change.

JC: Right.

HH: And so that would not lower the cost of Medicare.

JC: Well no, it does, because you see, this is what’s great about it, is that it happens to be that actually treating those infections is really expensive. So one of two things is going to happen. Either they’re going to keep giving people the infections, or we’re just going to pay them less, or they won’t keep giving people the infections, in which case they’ll run up lower charges.

HH: And how do they get the money to prevent people from getting the infections, because that’s got to be a costly transaction, right?

JC: Well no, this is one of the…and I am giving you the easiest example here…

HH: Sure you are.

JC: …because it’s easy to explain over the phone and everything. But they have done studies that show there’s actually a very easy, five step process that you can follow to drastically reduce the number of infections in hospitals. It was actually tested here in Michigan, as it happens, pure coincidence. Somebody did a study across the state, and they found that, you know, all the hospitals, the big ones, the small ones, the teaching ones, the community ones, all they did was very simple stuff like making sure everybody washes their hands, making sure you always apply a clean dressing…

HH: Jonathan, time out for a second. My law firm has represented hospitals for a long time when they’re sued for malpractice, et cetera. Hospitals across the United States are not indifferent to infection rates. Do you really believe that hospital administrators are walking around the United States not doing simple, easy, inexpensive things that will keep down infection rates?

JC: Yeah, actually I do, because this is what they found. They looked, and you know, everybody knows what you’re supposed to do. Obviously, everybody is taught it, but then, you know, we’re talking about human beings here, and they don’t. What these studies found was that if you actually do, and this is going to sound silly, but you know how when you go on an airplane, and the pilots have a checklist?

HH: Jonathan, that’s fine. I’ve read Clayton Christenson’s book, and I know all about that sort of stuff. But I want to go back. Have you posted yet, I’ll put it in this term…

JC: Okay.

HH: Have you posted yet a detailed analysis of where these $300-$450 billion dollars in Medicare savings are going to come from?

JC: I have not gone through every single one. I can tell you where you can find one if you want. I’ve done some of them. I did the infection one last week, which is one of the reasons that it’s in my brain right now.

HH: But isn’t it fair to say, I haven’t seen it anywhere, where they actually spell out in specific detail here is where we’re going to carve up Medicare to save the money? Now how much money are we going to save from stopping infections by washing hands?

JC: I think the figure on that was, and I’m going off the top of my head here, so don’t quote me on this, or at least check it before you use it, I think it’s about $40 billion over ten years, or something like that.

HH: Okay, so we’re down…let’s just give you the $40 billion in washing hands. We’re down to between $260 billion and $410 billion.

JC: Right, right. So there’s a bunch of things like this, is what’s I’m talking about. It’s not just one. I mean, there’s a whole list of these things.

HH: How many times can you stop an infection? I mean, it’s…come on, Jonathan, where are the cuts coming? Tell us where the cuts are coming.

JC: I am telling you. There is what’s called a productivity adjustment, and a lot of that is a bit part of the bang here, which is basically saying look, we are expecting over the next several years, and this ramps up gradually, so that hospitals and doctors can sort of plan on this in advance, and not just have it hit them in the face tomorrow, that look, we’re expecting that you can become more productive using information technology, coordinating your treatments better, so you can expect that we’re going to adjust your, every year there’s an adjustment in the rates to Medicare, and we’re just going to slightly lower that curve.

HH: So they’re just going to stop sending the money they currently send, and tell them to make up the difference in productivity?

JC: Yeah.

HH: Okay. I just want, I don’t think the public realizes how big the cuts are that are coming. Let me ask you a couple quick other questions. How much is the fine in the Senate version on people who don’t buy health care?

JC :How much is, I’m sorry?

HH: …is the fine on people who don’t buy health care?

JC: What did they say? They’re low. I wish they were higher. The fine for the Senate bill, I think, is in the low hundreds of dollars, $200 maybe, and it’s always scaled, too, so if you’re, you know, low income, you don’t have to actually pay that. And there are exemptions in there.

HH: It’s only $200 bucks?

JC: …if you can show that the, you know, insurance would cost you more than, I think, it’s 8% of, your premiums are above 8% of your…

HH: But it’s only $200 bucks if you don’t buy health insurance?

JC: $200 or $300. I, again, these numbers change all the time, and I don’t…

HH: Is there a threat of jail?

JC: No, you don’t go to jail. You pay a fine. And if you don’t pay a fine, they come out and say you have to pay a fine. And if you come to court, and you refuse to pay the fine, then, you know, just like if you refuse to pay a parking ticket, in theory, they can throw you in jail. I do not think you’re going to see a lot of people getting thrown in jail over this.

HH: Will the increase in Medicare taxes on people making $250,000 dollars a year or more in any way impact economic growth?

JC: It shouldn’t. I mean, you know, look, and that’s obviously, you know, that’s your opinion on how taxes effect economic growth.

HH: I don’t have an opinion. I asked a question.

JC: I would say no.

HH: Not at all?

JC: No.

HH: There’s no marginal spending that occurs with that 2%…it is 2%, is it not?

JC: Yeah, I mean, you know, I really don’t think…it’s a tiny…we’re talking about a tiny amount of money here. I just don’t see that having a huge…I mean, there is a tipping point where you get to marginal taxes, and taxes effecting growth, but…

HH: What is that?

JC: Higher than that. I don’t know, whatever.

HH: What is it totally, though? In Jonathan Cohn’s world…

JC: But I’m going to pull the Supreme Court card here and say I’ll know when I see it. It’s a lot bigger than that.

HH: No, but Jonathan, in…just generally speaking, if we get to a marginal income tax rate of what percent do you worry about productivity declining in response to marginal rates of income tax?

JC: Oh, you know, it depends on what income you were talking about. I can’t come up with a number here, but it’s much higher. I mean, look, we’re not talking about shifting the tax burdens. I mean, we’re talking about getting it closer to where it used to be during the Clinton administration.

HH: Okay. Will you come back again, Jonathan?

JC: Anytime. I would love to.

HH: All right. Jonathan Cohn of the New Republic, we’ll continue the conversation.

End of interview.

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