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Princeton professor Uwe Reinhardt explains how Obamacare will affect seniors and doctors

Tuesday, December 1, 2009
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HH: In my continuing effort to throw more light than heat on the health care debate, I’m joined now by Uwe Reinhardt. Uwe is a professor at Princeton. He’s one of the country’s leading authorities on health care economics. He’s also one of the signers of the letter to President Obama urging expeditious health care reform. Professor Reinhardt, welcome to the Hugh Hewitt Show.

UR: Pleasure to be here.

HH: I want to start, since you know the health care economics, about Medicare, and the proposed cuts to Medicare.

UR: Right.

HH: In a nutshell, where’s that $500 billion coming from, and how will Americans feel it?

UR: Well, it comes from various sources. The pharmaceutical industry has said they will cut the expected growth in spending. They will tolerate $80 billion of cuts. The hospital industry has indicated the are willing to tolerate a cut of $155 billion over the next ten years. But that comes out of $7.3 trillion in Medicare spending. So it’s really not a big deal. And then you have cuts in home care, and other kinds of services that are provided. Everyone takes a little hit. But it isn’t a cut. In fact, using the word cut is really raping the English language. This is a reduction in the fairly rapid growth rate in the spending.

HH: What about doctors and reimbursement rates, Professor Reinhardt? Will they be having their reimbursement rates cut?

UR: No. The answer is no. They never were cut, and they won’t get cut. What happened is in 1997, the Congress passed what they called a sustainable growth rate formula. It’s literally a mathematical equation, which is pegged on the growth of GDP, and a variety of other factors. And with that, they set for the physicians a budget for the coming year for Medicare, and said basically, we can sustain and afford as a nation a total budget for doctors of so many billion. Now when doctors bill more volume than had been budgeted, then next year, suppose the doctors bill 3% more volume than had been budgeted, then next year what would have been the fee update will get cut by 3%. That was the original idea. Now what actually happened, every year, for the most part every year, doctors exceeded the volume that was budgeted, because the fees were controlled so doctors can make more money by expanding volume – tests, imagining and so on. And each time, they exceeded the budget, and each time, they were supposed to take a hit for last year’s budget excess. But the Congress never imposed the hit on them, and banked it. So by now, you know, according to this equation, the doctors owe the rest of society a 20% fee cut. Now you and I, and every dog in Oregon knows this will never happen.

HH: Now is the Senate…

UR: Every year, Congress has fixed it.

HH: Now Professor Reinhardt, though, the Senate version of health care reform presently being debated calls, as many doctors have told me via e-mail and on the air, calls for a 21% reduction in their fee schedule in January.

UR: No, no. Absolutely no. I stake my reputation on it. It won’t happen.

HH: Well, you’re saying it won’t happen, but isn’t the economics of the bill saying it’s a balanced budget bill premised on that?

UR: No, it’s not premised on that at all. This…what happened, this issue of doctors fees shouldn’t be considered as part of health reform at all. That issue has been with us every year, and will be with us every year. That’s really not part of health reform, and I do not believe that that is part of the financing. I almost am sure. I will check it, but I’d be very surprised if that 20% cut were part of the financing, because everyone knows, that for sure will not happen.

HH: So…because I believe it is part of the Congressional Budget Office estimate of the ten year cut to Medicare, are reductions in the physicians fee schedule for Medicare, I’m pretty certain about that.

UR: Yeah, well, the Congressional Budget Office, they have sort of considered that part of health reform. They really shouldn’t have, and they actually claim that if you don’t cut, and if you give the doctors a 1-2% increase every year for the next ten years, then Congress will be in the hole for $36 billion dollars. That’s why the Congressional Budget Office has to score it that way.

HH: Well, I know that, but President Obama said he wouldn’t sign a bill that was other than deficit neutral. And so if they’re scoring it based upon this massive cut to physician reimbursement, it’s not an honest scoring, is it, Professor?

UR: No, none of the scoring is really very honest.

HH: Oh, that’s interesting.

UR: No, you know, the American people are really weird and funny people. They like these games. What the way the Congressional Budget Office calculates the so-called savings, there is a projection of what health spending would be in the next ten years if no law were ever passed again. In other words, everything is frozen the way it is today, and then what would spending be, which is a total guesstimate, and even that is a kind word.

HH: So is there, is it a deficit neutral bill that’s before the Senate right now, Professor?

UR: According to the rules that the Congressional Budget Office works by, yes it is.

HH: But under those rules, they count those physicians cuts which aren’t going to happen. So what do you really think is the cost of Obamacare?

UR: Well, I think they claim that it’s actually cutting the deficit over the next ten years, and much more thereafter. I personally doubt that the deficit will in fact be cut. For one, I mean, this physician fee cut, even if they put it in the bill, which is convenient, you and I know this is not going to happen, and some other cuts won’t happen. So it will in fact, when the ten years are over, this bill will have been not added to the deficit? I doubt it very much. It probably will. However, and this is what citizens should keep in mind, President Bush gave the elderly highly subsidized drugs. In the coming decade, that drug bill will add $1.2 trillion dollars to the deficit. President Bush didn’t even worry about financing. He just said financing? That’s not for me.

– – – –

HH: Professor, what is going to happen to Medicare Advantage, and to the seven to eight million Americans who are currently covered by it?

UR: Well, that’s a good question. I mean, as you may know, the Medicare Advantage, Medicare beneficiaries, have more money spent on them, more tax money, than people in traditional Medicare. That was something done in the previous administration. They wanted to favor them, the Medicare Advantage, and gave them roughly 14% more per elderly than an elderly would have cost in traditional Medicare. And with that, these plans can offer the elderly better benefits – lower premiums, vision care, better assortment of drugs, and so on. And obviously, if that advantage were taken away from the public plan, which…from the private plans, which the President would want to do, that would make it difficult for these plans to give the elderly the extra benefits. So they will then complain, and it’ll be said health care reform is cut out of their hide, et cetera. But I would tell these elderly, actually, you are getting more than the other elderly who stayed in traditional Medicare. And in fact, the other elderly, through their premiums, help subsidize your extra benefits. So this is in some ways quite inequitable. So I think there’s a strong case for taking that subsidy away.

HH: That might be what you tell them, but Professor, with about a minute and a half left, how would their lives change? Will they have to pay more for the same services? And if so…

UR: Yes, they will have to pay more for the same services, and in fact, they might get fewer benefits, yes.

HH: And how much more do you expect they’ll have to pay?

UR: Well, probably, I mean, the subsidy is about 14%, so you know, it could be a 14% hike in the premiums, or cut in their benefits. Probably a combination of the two.

HH: Pretty significant.

UR: They will be, without question, worse off.

HH: They will be, without question, worse off. And in terms of do you think they know that? Do you think that that’s been communicated to the voters?

UR: Yes. I believe they know that, because the health plans undoubtedly will have besieged them with literature telling them your benefits are in danger. I think there was some litigation of whether health plans could do that, but under the 1st Amendment, I can’t imagine why anyone would tell a health plan they cannot do that.

HH: All right, Professor Reinhardt, I look forward to having you back again. Thanks for spending some time with us today, and adding a little bit of light to the conversation. I appreciate it.

End of interview.

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