Obamacare and tax reform: a progressive double play (part IV)

This is the fourth and final in a series of posts about the paying for the Affordable Care Act. The first three posts can be found here, here and here.

So we’ve talked about how tax increases and closing loopholes generated about $440 billion in revenue to fund a shade under half the costs of the Affordable Care Act.  But we all know that jacking up taxes is for wimps and that Real Men ™ prefer budget cuts, preferably big ones.

Obamacare does that too. Better yet, it does so by cutting pricy subsidies to private insurance companies (who we all love to hate) AND providers (aka hospital systems and doctors) who actually drive much of the health cost inflation in this country. I'll go over the three biggest cuts here, though there are other significant changes to Medicare as well.

Per usual, numbers come from the Joint Committee on Taxation and much of detail comes from John McDonough (really, buy his book – this guy deserves every bit of royalties he can get). So take the jump for more details. 

Cut I: Reductions in Medicare Payments to Acute-Care Hospitals ($157 billion).

This number actually came from a productive negotiation among Obama Administration staffers, Senate Finance Committee Democrats and lobbyist groups representing hospital systems. Hospitals realized that with the expansion of Medicaid and insurance subsidies, they’d be getting fewer uninsured patients. In exchange for this windfall in payments, they agreed to cuts in Medicare reimbursements rates on a number of basic services. (They also remembered what happened with budget cuts in Medicare reimbursements during the 1990s and figured that supporting health reform would at least guarantee them that their patients could pay). Sometimes negotiations are overrated, but sometimes they produce productive compromises that all sides can live with. Fortunately for the ACA, this agreement was one of the latter.

Cut II: Home Health Medicare Payments ($40 billion)  

Home Health care is a source of uncertain standards, relatively high profit margins ….and lots of fraud. These payment reductions (combined with some money for fraud detection and enforcement in other places in the ACA)  reduce skimming.

Cut III: Reduction in Payments to Medicare Advantage Plans ($136 billion)

Insurance companies had a chance to come to a deal here. Instead they chose to declare war on Health Reform – and it cost them billions of dollars. (Senate staffers wanted $155 billion in concessions and the insurance industry offered roughly $80 billion before walking away)

Medicare Advantage plans allow seniors to enroll in privately managed insurance options instead of traditional Medicare.  The precursor of the program began in 1976 with the idea that private insurers might be able to provide cheaper care than Medicare. But instead of providing cheaper care, companies just skimmed the healthiest seniors off the top and dumped the sickest on the traditional program. Clinton-administration-backed reforms in the 1997 Balanced Budget Act ended the worst abuses, which then returned with the Bush administration’s Medicare Part D program, which jacked up the corporate welfare machine for the managed care companies. McDonough notes Medicare Advantage was costing taxpayers $14 billion more a year than they would be if they were covered under traditional Medicare.

Obamacare rejiggers the reimbursement rates to restore the "advantage" to taxpayers.

For those of you keeping score at home, that’s three major budget cuts totaling $333 billion for the decade of 2010 through 2019. Each of those three cuts, which together pay for nearly 40 percent of the ACA, came at the expense of major corporations and will go toward providing health insurance for low and middle-income Americans.

As I’ve detailed in each of the four posts on the subject of paying for the ACA.  Then-New York Times economics columnist David Leonhardt quickly picked up on  this fact early on, but the point has seemed remarkably muted since. I've noticed in both reading and in correspondence an ongoing disappointment or skepticism of the ACA. Many liberals think it’s a sell-out various interest groups (insurance companies and drug manufacturers are the usual favorites.) Many others think that the ACA is weak tea in comparison to single-payer.

I'm somewhat sympathetic to these arguments, but I also think we need to keep our eye on reality As I’ve shown here, not only do massive  benefits accrue to the lower economic stratum, but they get paid for by the wealthiest sectors of society. The poor and middle class ( aka “the good guys” -- at least in my normative world) have won a domestic policy victory bigger than anything since the 1960s.

By all means, we can and should do better with future reforms. But let's celebrate this incredible achievement.

(blows on party noisemaker)

OK -- enough celebrating. Come on, Obama, get that damn Web enrollment system at Healthcare.gov up and working!