Obama’s Medicare Cuts by Region

There’s been a lot written about the $741 billion in spending cuts in the Medicare program that are used to finance insurance exchange subsidies and Medicaid expansion for younger Americans.  The reality of the cuts provides a powerful argument for the need to reform traditional fee-for-service Medicare to ensure its long-run viability. 

Robert Book and Michael Ramlet explore a different aspect of the cuts by estimating the regional impact of the Medicare spending reductions introduced by the Affordable Care Act (ACA).   Their study, a part of the University of Minnesota’s Carlson School working paper series, uses data from the analysis presented to Congress by the Congressional Budget Office (CBO) on June 24, 2012. 

According to CBO estimates the $741 billion cuts are achieved by reducing payments to hospitals ($260 billion), other providers except physicians ($155 billion), Medicare Advantage ($156 billion), disproportionate share hospital (DSH) payments ($25 billion), and miscellaneous other provisions ($114 billion).  Physicians don’t escape completely.  A 30% reduction in their payments is scheduled to go into effect on January 1, 2013, amounting to almost $250 billion over the next decade.  (To be fair, the physician payment cuts are not part of the ACA.) 

The reductions hit parts of the US where seniors congregate, including California, Texas, and Florida.  Combined losses in those three states represent 20% of the total, or $148 billion.  Pennsylvania, Illinois, Michigan, Ohio, New Jersey, North Carolina, and Massachusetts complete the top ten.  Their losses total $142 billion meaning that these ten states lose $290 billion, or approximately 40% of the total. 

Cuts are good right?  Remember that someone’s spending is someone else’s income.  These spending cuts represent cuts in revenues to hospitals, hospices, home health agencies, skilled nursing facilities, and private insurance companies.  To the extent that these payment changes result in greater efficiency in health care delivery, they are a good thing.  However, Medicare actuaries estimate that 40% of all US hospitals will face insolvency by the end of the decade because of these cuts.  They simply will not be able to adjust their practices quickly enough to avoid the consequences. 

Good luck in finding a provider all you seniors . 

Book and Ramlet’s study is available at http://www.carlsonschool.umn.edu/medical-industry-leadership-institute/publications/documents/BookandRamletpaperonMedicare.pdf.  The CBO report can be found at http://www.cbo.gov/sites/default/files/cbofiles/attachments/43471-hr6079.pdf.