Obama’s Medicare Cuts: Arbitrary Caps and Price Controls

Conn Carroll / June 22, 2009

Even before the Congressional Budget Office put $1 to $1.6 trillion price tags on the latest Senate health care plans, President Barack Obama proposed to cut Medicare and Medicaid reimbursement rates for various health care providers by an additional $313 billion over 10 years. Those cuts came on top of the $309 billion the President proposed in his 2010 budget submission to Congress, for a total proposed reduction in Medicare and Medicaid of $622 billion over 10 years.

As admirable as the President’s desire to control health care costs is, the proposed reductions are emblematic of how the government runs a health insurance plan. Ethics and Public Policy Center fellow James C. Capretta explains:

After much talk of trying to pay for value instead of quantity, the government is resorting to arbitrary, across-the-board fee cuts–which generally hit all providers, regardless of quality or cost–to meet budgetary goals.

Furthermore, these fee cuts are not likely to change the underlying cost structure in health care. In the past, when Medicare has cut reimbursement rates, providers of medical services have raised rates for private insurers to make up the difference. There is every reason to believe President Obama’s proposed payment rate cuts would also lead to cost shifting.
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The government can and should play an effective oversight role in such a marketplace, much as the Centers for Medicare and Medicaid Services have done with the new Medicare prescription drug benefit. But the government cannot bend the cost curve from Washington without resorting to arbitrary caps and price controls that always lead to a reduction in the willing suppliers of services and waiting lists.

Read Capretta’s full paper here.