In theory, President Obama’s
budget, if passed, would put the federal budget on a path to
balancing in 2055. I say “in theory” because, as the conservative
think tank E21
points out, that projection relies on three convenient but not
particularly realistic assumptions.
The first is that federal tax revenues rise to roughly 23.8
percent of the economy, due in part to incomes growing faster than
inflation. ; As E21 notes, this is probably the most plausible
assumption, in that it’s easy enough to believe that President
Obama, at least, might support raising taxes that high. But taxing
that much of the economy would be unprecedented in American
history. Federal tax revenues as a share of the economy have
average about 18 percent since World War II—and have never once
exceeded 20.9 percent of gross domestic product.
The second assumption is that discretionary spending simply
holds flat at 2023 levels—essentially forever. Now, that may sound
like an excellent idea to those of us who would prefer that the
federal government exhibit restraint when it comes to discretionary
spending. But given the White House’s dire warnings about the
threat posed by modest spending growth under sequestration, it does
not seem particularly realistic.
Finally, the long-term budget projection rely on the Independent
Payment Advisory Board (IPAB), a Medicare cost-control panel
created by ObamaCare, to make Medicare’s long-term budget problems
disappear.
This is particularly fantastic, for a number of reasons. One is
that it, politically, it’s almost certain to be impossible. The
budget might as well have assumed a magic Medicare fairy
instead.
Instead, it tightens IPAB’s cost-control target, reducing
Medicare’s allowable growth from GDP plus 1 percent to GDP plus 0.5
percent. Given that Republicans have already targeted IPAB for
soon-as-they-can-get-it repeal, and given that there is already
Democratic discomfort with the board and some explicit bipartisan
support for repeal measures, it is wishful thinking to believe that
there is any legislative majority that’s going to be willing to
vote to make IPAB stronger.
Another reason is that we don’t really know whether IPAB will
work, even if it manages to survive. The board is essentially
limited to tightening reimbursements for health providers. But that
sort of cost-control-by-payment-reduction has always been tough to
sustain. We see it with the so-called “doc fix,” a scheduled
reduction to physician reimbursement rates that Congress overrides
every year. We’ve also seen it recently with
scheduled payments to Medicare Advantage providers, which the
Department of Health and Human Services recently decided to
override. There’s even Congressional
movement to override some of the sequester’s cuts to Medicare
reimbursements. ;
Moreover, even if the reimbursement reductions went through a
few times, it’s hard to believe that, without other major changes,
they could be sustained over time. Medicare’s former chief actuary,
Richard Foster, has repeatedly made clear that after a few years,
ObamaCare’s Medicare reimbursement reductions would probably result
in serious access problems for Medicare enrollees—and if so,
“Congress would have to intervene to prevent the withdrawal of
providers from the Medicare market and the severe problems with
beneficiary access to care that would result.”
In some ways IPAB is just a giant
magic asterisk for Medicare. We have good reason to believe
that it would focus its cost-control efforts on the reimbursement
system, but we don’t really know what it would do. We do, however,
know that if there are no easy, obvious changes to the program’s
payment system; we know that because if there were, they would have
been done by now.
I am not entirely opposed to IPAB’s existence; all else being
equal, it’s probably better to have a cost-control board attempting
to reduce spending on the program than not. Congress has certainly
proven that it is not capable of restraining spending within the
program at all. That said, I’m quite skeptical that IPAB will end
up being effective at restraining Medicare spending. The
big-picture political dynamics will make it tough for the board to
do anything at all; legislators will have a hard time being too
supportive of any board of unelected experts whose job is to cut
spending on Medicare. And the narrow interest group pressures will
make it tough for the board to do anything specific; it’s one thing
to cut spending on Medicare generally, it’s another to cut spending
on a specific part of Medicare. So even if IPAB works, there’s a
good chance that IPAB still won’t really work. ; … Read More
