Medicare’s chief actuary rejects rosy projections from CMS

posted at 9:30 am on August 9, 2010 by Ed Morrissey

Last week, the Obama administration used the Medicare Trustees Report to argue that its ObamaCare bill had created new life for the troubled entitlement.  The economics site E21 took a closer look at the report and discovered that it contained an unprecedented dissent — from Medicare’s own chief actuary.  The memo claimed that the estimates used by the White House and its allies underestimated costs by a whopping 68% and could not possibly be seen as a good-faith projection of the program’s future:

“(T)he financial projections shown in this report for Medicare do not represent a reasonable expectation for actual program operations in either the short range. . . or the long range. . . . I encourage readers to review the ‘illustrative alternative’ projections that are based on more sustainable assumptions for physician and other Medicare price updates.”

These remarkable words are found, in all places, in the “Statement of Actuarial Opinion” in the back of the 2010 annual Medicare Trustees’ Report.

It is difficult to overstate how unusual this development is. The normal process with the annual Trustees’ Reports is for the Trustees to develop and publish the best available projections for the future finances of Social Security and Medicare. The respective Social Security and Medicare actuaries then sign a pro forma blessing of those projections, which is tacked to the back of the report when released to the public.

This year, the Medicare Chief Actuary clearly did not feel he could in good conscience sign such a declaration.

What happened?  Our old friend the “doctor fix” raised his head again.  It turns out that the Medicare trustees’ projection of costs relies on the postponed 23% cuts in reimbursements to take effect — even though the White House and the Democrats have repeatedly promised the AMA they would be repealed.  Democrats passed a temporary suspension of the cuts in June, but are widely expected to pass another, more lengthy suspension before those expire in November.

The actuary also rejected the idea that “economy-wide productivity” gains would drive costs downward:

The other major source of projection error is the assumption, enshrined in the recent health care law, that future program cost growth will be contained by downward adjustments in annual price updates, reflecting in turn the assumption that health service productivity growth will parallel “economy-wide productivity.” The actuary states, however, that “(t)he best available evidence is that most health care providers cannot improve their productivity to this degree – or even approach this level – as a result of the labor-intensive nature of these services.”

The actuary’s memo provides greater detail on the point. The memo notes the long-acknowledged phenomenon that productivity growth in services industries is generally not as rapid as in industries affected more by technology improvements. It is possible, for example, for productivity in personal computer manufacturing to improve several-fold in a short time. It is not similarly possible for productivity in nursing services to mushroom in the same way. The actuary’s memo rightly notes the generally slower pace of productivity growth in the health care field, which has been slowest of all in such labor-intensive venues as skilled nursing facilities and home health services.

As a result, the memo finds, it “very unlikely” that Medicare productivity growth can mirror productivity growth in the larger economy. The chief consequence of the legislated productivity adjustments, therefore, would be to render 15 percent of hospitals, skilled nursing facilities, and home health agencies unprofitable by 2019 — up to 25 percent in 2030 and 40 percent by 2050.

The actuary concludes that “neither of these update reductions is sustainable in the long range, and Congress is very likely to legislatively override or otherwise modify the reductions in the future to ensure that Medicare beneficiaries continue to have access to health care services.”

The health-care industry won’t see “economy-wide productivity” gains anyway, because of the top-down nature of ObamaCare and government regulation.  It’s almost too obvious to point this out, but efficiency does not have a direct relationship with regulation, but usually an inverse relationship.  As regulations grow, productivity and efficiency decline.  One cannot impose top-down government control over an entire industry and then expect it to develop productivity and efficiency at the same pace as the free market.  That assumption is absurd on its face.

Also, it appears that CMS got caught double-counting, just like the Democrats in Congress did:

Bad though all of this is, none of it is actually the worst gimmick in the official report’s advertised improvement in Medicare solvency. That involves the double-counting of Medicare savings. Earlier this year, Congress passed a health care bill containing various new Medicare taxes and constraints on program expenditures. Such savings are assumed in the official report to extend the solvency of Medicare. But Congress chose instead to spend the savings on a new health care entitlement.

The Medicare actuary wrote a memorandum on April 22 of this year calling attention to this “double-counting.” “In practice,” he stated, “the improved Part A financing cannot simultaneously be used to finance other Federal outlays (such as the coverage expansions under the PPACA) and to extend the trust fund, despite the appearance of this result from the respective accounting conventions.”

In other words, money can only be used once. Since the Medicare savings is being spent elsewhere on expanded health care coverage, it is not really being employed to extend Medicare solvency. To claim an improvement in Medicare financing is to mislead about the effects of recent legislation.

The entire program is a gimmick; this is just the worst part of the rationalization behind it.

Last week, the media rushed to report the CMS analysis as a support for Barack Obama’s claims of success with ObamaCare.  Will they rush to report the dissent from the Medicare actuary and its clear indictment of the false assumptions and evasions of the Obama administration and Democratic leadership on Capitol Hill?  I’d bet … no.


Related Posts:

Breaking on Hot Air

Blowback

Note from Hot Air management: This section is for comments from Hot Air's community of registered readers. Please don't assume that Hot Air management agrees with or otherwise endorses any particular comment just because we let it stand. A reminder: Anyone who fails to comply with our terms of use may lose their posting privilege.

Trackbacks/Pings

Trackback URL

Comments

They lied.

rob verdi on August 9, 2010 at 9:33 AM

Its amazing, they push lie after lie and then scratch their heads at anti-government animus.

rob verdi on August 9, 2010 at 9:34 AM

Panama is looking REAL good right now.

artist on August 9, 2010 at 9:34 AM

Looks like the actuary has called the shell game that the administration is playing. An unprecedented underestimation of costs by 68%….Holy hand grenades Batman! WTF is going on. The Ministry of Truth is merely lying to the American people and Medicare is failing, lying about it merely is used to support the failure that is already Obamacare and it is no wonder that the mandatory payment was resoundingly voted down in Missouri last week. I expect more to come on this one.

ted c on August 9, 2010 at 9:36 AM

In other words, money can only be used once.

Do yous mean that Is can only buy one piece o’ cake with this here obamadollar? and then its gone? shucks!

ted c on August 9, 2010 at 9:38 AM

Of course they lied. Unfortunately the media ran with the “story”.
It was splashed on the news all day that Obamas’ health care law was going to save money and medicare would be solvent for 12 years. The damage is done. There will be no mention in the media of this “correction.”

sandee on August 9, 2010 at 9:40 AM

I find it telling that a bunch of lawyer/politicians are telling us that there are great efficiences to be rung out of health care.

When lawyers routinely make $500 an hour.

NoDonkey on August 9, 2010 at 9:41 AM

Oh, what’s 68% between friends? With all the creative math going on in D.C., is it any wonder no one trusts them?

Cindy Munford on August 9, 2010 at 9:42 AM

When lawyers routinely make $500 an hour.

NoDonkey on August 9, 2010 at 9:41 AM

Some of us pay that for a damn haircut-John Edwards

artist on August 9, 2010 at 9:43 AM

I see no way this administration can not introduce a VAT in some form. There is simply no way that we can stay on this path in the near future without a massive “new” source of revenue for the Fed, and a VAT is most likely the simplest and quickest way to get tons of new money into the system. If not, default is looking like more of a certainty within the next decade.

Johnnyreb on August 9, 2010 at 9:44 AM

Our old friend the “doctor fix” raised his head again. It turns out that the Medicare trustees’ projection of costs relies on the postponed 23% cuts in reimbursements to take effect — even though the White House and the Democrats have repeatedly promised the AMA they would be repealed.

Ahhh, Voodoo economics. They won’t repeal it because it’s sooo convenient for budget projections. Like the AMT patch which passes every year.

The AMT Exemption, also known as “the annual patch” – the AMT Exemption amount is set annually by Congress. This is a prescribed amount by which a taxpayer’s Alternative Minimum Taxable Income must exceed his Regular Tax taxable income before the AMT itself is triggered. If Congress were to fail to adjust this exemption amount, 24 million new taxpayers would be pulled into the AMT, in addition to the four-plus million already stuck there.

Jeff2161 on August 9, 2010 at 9:46 AM

…a VAT is most likely the simplest and quickest way to get tons of new money into the system. If not, default is looking like more of a certainty within the next decade.

Johnnyreb on August 9, 2010 at 9:44 AM

Hence, the increased reporting of purchases over $600 on 1099 forms mandated in the Bill.

Jeff2161 on August 9, 2010 at 9:48 AM

Robbing Peter and then waiting a while to rob Paul to pay back Peter and again and again…seems to have become standard practice in DC. We read about folks who have gone to prison for along time for just this practice.

jeanie on August 9, 2010 at 9:48 AM

Barry & Marie…Let’em eat cake….

PatriotRider on August 9, 2010 at 9:49 AM

Obama Administration fudges numbers on Medicare

C’mon. You all know what I’m going to say next . . .

listens2glenn on August 9, 2010 at 9:50 AM

They Lied ? NO not a bunch of corrupt elitists from Chicago!!
But there is a sliver lining , Michelle’s trip to Spain has yielded a MIRACLE CURE .While getting an in room massage in the private massage room of her hotel luxury suite ,Michell had a vision .
Scientists are now validating the discovery .
1 part Hypocrisy
3 parts Corruption
1 part of ” do as I say not as I do ”
5 parts criminal activity
1 part appoint crooked lawyers to conceal above ingredients
1 part ” essence of poverty pie ”
BLEND ingredients together , fill an all organic carbon fibre oven with HOT AIR and LIES from the TYRANT in chief , and bake for 83 days

YIELDS 320 million pieces of HOPE N CHANGE CAKE .

Serve with generous helpings of PROPAGANDA provided by Axelrod, Plouffe, and CAPTAIN GIBBS

ELMO Q on August 9, 2010 at 9:52 AM

“I see no way this administration can not introduce a VAT in some form. There is simply no way that we can stay on this path in the near future without a massive “new” source of revenue …”
Johnnyreb on August 9, 2010 at 9:44 AM

Johnnyreb,

The problem is, a VAT without cutting out income tax would more likely lead to a drop in revenue rather than an increase. The kind of price increases that would ensue without any corresponding rise in income would lead to a massive slowdown of the economy along with an enormous increase in unemployment. Not that the Obama administration would admit/believe this, but it is simply not rational to believe there is any ‘quick fix’ for the ‘revenue’ problem, since, as a portion of the GDP our current revenues are pretty close to tapped out. The only sure way to raise revenue is to grow the economy, and that would require actions that are anathema to the Obamaniacs.

WashingtonsWake on August 9, 2010 at 9:55 AM

When lawyers routinely make $500 an hour.

NoDonkey on August 9, 2010 at 9:41 AM

We need Universal Legal Care !!!

BowHuntingTexas on August 9, 2010 at 9:59 AM

Cooked numbers? Think I’ll go visit Claude Rains’ grave again today.

Del Dolemonte on August 9, 2010 at 9:59 AM

The only sure way to raise revenue is to grow the economy, and that would require actions that are anathema to the Obamaniacs.

WashingtonsWake on August 9, 2010 at 9:55 AM

Oh I agree with that statement, and that’s why I see the Dems and Obama introducing some form of new taxes like I said above. They are simply incapable of reducing any tax or cutting any spending, so they only have the one option, raise the current taxes or look for a new revenue stream.

Johnnyreb on August 9, 2010 at 10:01 AM

Where is Captain Reneault when you need him?

Shocked. Shocked I tell you.

WashingtonsWake on August 9, 2010 at 10:01 AM

I’d bet … no.

You have bet….wisely

cmsinaz on August 9, 2010 at 10:02 AM

A year from now will the elitists in the District of Corruption be forced to choose between Social Security and medi care or obamacare? Will they man up and say that there is no money to pay for all these programs and still have the funding for union pensions and teacher bail outs?

tim c on August 9, 2010 at 10:02 AM

I wouldn’t mind a 99% tax rate for those who get rich while in office.

Jeff2161 on August 9, 2010 at 10:03 AM

CMS lied, grandma died….

jeffn21 on August 9, 2010 at 10:09 AM

Can we finally say that Joe Wilson spoke THE TRUTH?!

The only reason they are not getting by with all of these lies with no question is because of the ‘net. There are some of us who get these types of stories and information. Many, many others do not. But those who do (and it’s in the many millions) know the score. The top-down government lies do not work when the public is properly informed.

UnderstandingisPower on August 9, 2010 at 10:11 AM

Ed says: “The health-care industry won’t see “economy-wide productivity” gains anyway, because of the top-down nature of ObamaCare and government regulation.”

This all falls under the General Welfare Clause.

Obama’s the General. Figure out who’s paying the welfare.

Rovin on August 9, 2010 at 10:16 AM

I don’t watch, or listen to any of the msm’s. Hell I don’t even watch their shows anymore. I’m that disgusted with all of this mess. If they want to pander to Obama, and lie, and distort for him, in order to further his agenda? FINE!!! But they can do it without me!

capejasmine on August 9, 2010 at 10:22 AM

One cannot impose top-down government control over an entire industry and then expect it to develop productivity and efficiency at the same pace as the free market. That assumption is absurd on its face.

You must be wrong, Ed. As an example, our biggest industry, government, has become so much more efficient as it has slimmed down in the last decade. Now it can write two thousand page legistration at the drop of a hat. We used to make do with a few hundred pages at the most. Go back a couple of centuries; it took weeks of our brightest and most dedicated government workers to agree on our Constitution which isn’t even on hundred pages long.

burt on August 9, 2010 at 10:27 AM

Thanks for reporting this Ed. That’s why you’re important to the flow of accurate information.

LFRGary on August 9, 2010 at 10:39 AM

So the OA of the WH looked at the SAO in the MTR report and the MCA wouldn’t sign off because the CMS double counted, most obvious in the PPACA…
Or as Joe Wilson stated so eloquently…YOU LIE!

right2bright on August 9, 2010 at 11:12 AM

Spoiler ending. TG for an honest actuary.

journeyintothewhirlwind on August 9, 2010 at 11:16 AM

Obowma regime’s shuck and jive is no longer working for anyone. Hey it’s a start.

tarpon on August 9, 2010 at 11:22 AM

Those numbers he is using must be racist/sarc

UNREPENTANT CONSERVATIVE CAPITOLIST on August 9, 2010 at 11:43 AM

The Obama White House is getting real good at LYING.
So much for the ‘most honest, most open, most transparent administration, evah!’

GarandFan on August 9, 2010 at 11:48 AM

Fix: Just defund the whole mess in January. Oh yes.

Mojave Mark on August 9, 2010 at 11:59 AM

White House to US citizenry:

“The check is in the mail”.

There can no longer be any doubt that the greatest administration ever is playing a shell game with the finances of the country. If CISCO had done this, the senior management would be on trial for fraud.

Instead, here on planet bizarro, we hear how the WH has saved SSA, Medicare, and Medicaid.

When can we expect the indictments to flow?

BobMbx on August 9, 2010 at 12:02 PM

Remember the scene in “To Kill A Mockingbird” when Mr Cunningham drops off a bushel of pecans for Atticus Finch as a payment toward his legal fees? Hope all our Doctors of today really like pecans cause they’re going to get a mountain of them it looks like,

Herb on August 9, 2010 at 12:12 PM

This is the same type of accounting that allows one to reduce the unemployment rate .5% during a period of time when there was a 1/2 million net job LOSS. These spreads have been massaged more than the feet of Marcellus Wallace’s wife. Anyone who believes any numbers coming out of the government under this administration is delusional.

tommyboy on August 9, 2010 at 12:25 PM

Warning to press corps: Don’t ask Gibbs about this, or he’ll laugh at you & accuse you of playing gotcha.

KS Rex on August 9, 2010 at 12:31 PM

CMS lied, grandma died….

jeffn21 on August 9, 2010 at 10:09 AM

Ya’ beat me to it. Great minds, same circle.

GrannyDee on August 9, 2010 at 12:36 PM

Will they rush to report the dissent from the Medicare actuary… I’d bet … no.

You win!

oldleprechaun on August 9, 2010 at 12:47 PM

Look, there is a simple and sure-fire way to know the truth about extremely complex issues like this.

Listen to what the regime say.

The opposite is the truth.

notagool on August 9, 2010 at 2:50 PM

Can someone explain why? Why are they lying and decieving and bankrupting medicine? Why are the Democrats doing this and and why is the LSM in collusion with them to ram this monstrosity down America’s throat? What is going on here…I really want to know what the hell is going on? These are not innocent little lies and deception… They are evil…

CCRWM on August 9, 2010 at 6:10 PM

Cost disease.

DrSteve on August 9, 2010 at 7:05 PM