Bad medicine: The $400 billion SGR doc fix bill

This week, the GOP-led House of Representatives will take two major legislative actions before breaking for Easter/Passover.  Only in Washington can this weekly outlook be believable. 

On Wednesday, House Republicans will likely pass a 10-year balanced budget, which contains a solid, yet imperfect, plan to downsize the federal government.  The following day they will pass a massive new health care spending bill together with Democrats, saddling taxpayers with a $400 billion tab over the next 20 years. 

Here’s the kicker: the balanced budget will be a non-binding resolution that Republicans will never stand behind during the appropriations season; the “doc fix” spending bill (H.R. 2), on the other hand, will absolutely become law. 

This legislative dynamic essentially sums up Republican governance over the past few decades.  In word and campaign rhetoric they talk a good conservative game; in deed they join with Democrats to grow government. 

House Speaker John Boehner (R-OH) is putting the finishing touches on the $210 billion health care spending plan, which would replace with current “SGR” federal reimbursement scheme for Medicare providers with a new system.  Everyone agrees that under the current broken single-payer Medicare system costs have grown out of control and have engendered a need to better compensate health care providers for treating Medicare patients.  However, it is better to pass a short-term rate increase with spending offsets than to pass a permanent bill that is not fully offset and contains no structural free market reforms to address the root cause of price inflation in Medicare. 

Worse, this plan adds in a full two-year reauthorization of the SCHIP welfare program without any reforms, which as we noted, should be terminated altogether in light of the Medicaid expansion and Obamacare. 

At present, the federal government spends roughly $920 billion on health care programs ($527 billion on Medicare) – 76% more than our base defense budget.  That cost is already set to explode with the full implementation of Obamacare in the next few years. 

Every Republican rails against profligate spending and the entitlement culture, yet they are now set to add a net $140 billion in health care spending over the next 10 years and $400 billion over the next 20 years – all with full bipartisan cooperation.

Here is the budget math on this proposed legislation, as explained by the Committee for a Responsible Federal Government.  Only $65 billion of the initial $210 billion 10-year cost will be offset by spending cuts.  Those spending cuts will primarily come from increased Medicare Part B premiums for wealthy seniors ($133,500 income level for individual and $267,000 for couples) and limits on federally-subsidized Medigap plans designed to supplement traditional Medicare plans.     

Some Republican supporters of the SGR fix are noting that the means-testing of Medicare benefits is a significant enough conservative reform to justify voting for the bill.  They maintain that, in the long run, the savings from the means-testing will recoup the costs of higher Medicare payouts.  But as the Committee for a Responsible Federal Government notes, the cost of Medicare payments in the out years of the budget will grow even faster than the savings.  They estimate that gross costs over the next 20 years will top $700 billion, while savings will only offset $300 billion – a net deficit of $400 billion. 

In one fell swoop, Republicans will void out any savings they have enacted from other legislation they so enthusiastically tout. What’s worse, it’s not like there’s nothing to cut. For starters, Heritage outlines 106 easy ways to cut spending and reduce the size of government. The fact that they have to scrape the bottom of the barrel only to come up with such a small share of offsets shows how they fundamentally agree with the size of the leviathan as it is.

Moreover, this is a politically dumb maneuver because they are allowing Democrats to set a trap.  We are all in favor of means-testing entitlements (as opposed to taxes) as part of a broader reform package that includes solutions, such as premium support, which will actually bring down costs for everyone and address the root problem of Medicare.  But if they are not going to enact those reforms and opt only for austerity measures, they expose themselves to inevitable campaign attacks from Democrats who will accuse them of cutting Medicare and popular Medigap plans.

Conservatives would be willing to confront the political backlash for austerity cuts to Medicare if this was a truly conservative bill that cut the deficit, and more importantly, harnessed the free market to cut the market costs of health care.  This bill does neither.  It saddles us with $400 billion in debt over 20 years and continues feeding the endless cycle of government subsidies and the inflated health care bubble.  So why risk touching the third rail of politics for a proposal that is far from conservative policy?

But fear not, expect your inboxes to be full of press releases and mass mailers from Republicans ballyhooing their support for a balanced budget proposal this week in an attempt to avert your eyes from that $400 billion bill being swept under the rug.    

UPDATE: Since this article was originally published, the Committee for a Responsible Federal Budget (CRFB) has updated their projected cost of the bill after analyzing the final version.  The 20-year deficit is now projected to be $500 billion.