President Obama and his campaign surrogates have found a convenient and scary talking point when it comes to the Republicans’ plan for Medicare: telling seniors it will cost them $6,400 more than their current plans.
The problem with that number? It relies on economic assumptions that start getting fuzzy when you try to put a hard number on exactly how much money seniors will have to pay 10 years from now, especially when compared with their current Medicare plans.
Of course, Democrats are not the only party guilty of creative interpretations of data to fit their talking points. Republicans, including Mitt Romney, continue to accuse the president of gutting Medicare in the health reform law with $500 billion in “cuts,” most of which are attributable to the law’s slowing the rate at which Medicare hospital payments rise over time.
The $6,400 figure is a similar approximation of the truth. It comes from the Congressional Budget Office, but it is not a number that CBO’s economists offered themselves. Instead, it is an interpretation of CBO’s analysis. Liberal thinkers took CBO’s first estimates of Republican Rep. Paul Ryan’s Medicare plan and used simple subtraction to arrive at the $6,400 figure—taking the difference between what seniors would have to pay for the estimated cost of a private Medicare plan in 2022 and what traditional Medicare would cost seniors that same year. That approximation might be as close to reality 10 years from now as the expectation that Medicare doctors will, one day, have a pay scale that reflects the “sustainable growth rate” formula that Congress puts off every few months.
The estimate also highlights one of CBO’s biggest challenges: predicting the behavior of individuals and markets and their influence on health care costs. As Director Douglas Elmendorf told the House Budget Committee in 2011, his office doesn’t have the ability to account for any cost decreases (or increases, for that matter) that could come from competition between private plans.
“We are not applying any additional effects of competition on this growth rate over time in our analysis of your proposal. And, again, we don’t have the tools, the analysis, we would need to do a quantitative evaluation of the importance of those factors,” Elmendorf said.
That’s because most health economists have no idea what really happens when insurance companies truly compete for Medicare beneficiaries. The studies aren’t there.
“We have no evidence base as to what would happen under a different bidding model,” said Robert Berenson, a fellow at the Urban Institute. “What’s becoming clear to me is there’s no clear consensus on the theory.... If I was sitting in CBO’s place, we certainly don’t have any empirical evidence to make any sort of judgment.”
But CBO’s current estimate puts the effects of competition at zero, which Gail Wilensky, a former head of Medicare and Medicaid in the George H.W. Bush administration, says is an even worse assumption than making some sort of educated guess.
“You know it’s not zero, that’s the complete cop-out,” Wilensky said in an interview. “Their assumption is zero; it’s a very specific assumption, and it’s the one thing that’s definitely not accurate.”
The Obama campaign says it is the best analysis it has, because Romney’s plans lack detail. But on that front, Republicans would say that the president has proposed no significant overhaul of the Medicare program that can match what Republicans have put out. The closest Obama has come to Medicare reform was supporting an increase in the eligibility age during the debt-ceiling talks—something the campaign doesn’t mention on the campaign trail—and a budget proposal for an executive-branch Medicare board to hit tougher spending targets.
And there are more problems behind the $6,400 number. Although Romney initially backed the original Ryan budget, he has since issued a plan that keeps traditional Medicare in place, albeit tied to lower-cost plans on the Medicare exchange. The CBO analysis that the Obama campaign uses to back its $6,400 claim does not take that into account, since it is based on the first Ryan Medicare plan.
None of that seems to matter on the campaign trail, but that’s not really a surprise. To borrow a line from Casablanca’s Captain Renault, “I am shocked—shocked!”—to see the campaigns manipulate health care data to fit their arguments.
This article appears in the July 25, 2012, edition of National Journal Daily.