American Action Network Promotes Government Subsidies

The American Action Network (AAN), a 501(c)(4) right-wing think tank, has published a report that purports to show that Medicare Advantage (MA) payments will be about 13% less in 2015 than they would have been had the Affordable Care Act not interfered. To get the attention of members of Congress, the report shows the reductions by Congressional district.

The AAN analysis doesn’t mention sequestration, which probably accounts for 2% of this 13%. Sequestration of course, has nothing to do with the ACA. Nor do they mention MedPAC’s repeated recommendations to Congress to reduce the benchmarks that determine MA payments, so that they equal Medicare’s average fee for service (FFS) costs. For example, see MedPAC reports in the period just prior to the passage of the ACA: https://www.medpac.gov/chapters/Jun09_Ch07.pdf and https://www.medpac.gov/documents/Mar10_EntireReport.pdf. Reducing Medicare Advantage payments to parity with Medicare FFS, as recommended by MedPAC, is the reason for the cuts that the ACA imposes. As usual in Washington, the word “cuts” in this context doesn’t mean an absolute reduction, just less than what would have been spent under the old law.

The AAN report does not describe how either the projected 2015 payments or the pre-ACA 2015 payments-that-would-have-been were calculated, so there’s no way to comment on the validity of the 13% figure beyond the above observations. By my calculations, the ACA reductions amount to about 9% less than what the average benchmark would have been, before sequestration. With sequestration, I come up with a reduction of 11% relative to the trended pre-ACA benchmark, compared with the AAN’s 13%. But that doesn’t take into account any changes in risk adjustment or quality bonuses, which the AAN report claims to include. One would expect risk adjustment to be a net positive, even after the increase in the amount deducted by the coding intensity adjustment, as plans have gotten better at coding. And quality bonuses are also a net positive, even with the end of the stars demo in 2015. So adding these to the 9% reduction in the published benchmark should produce a smaller reduction, relative to the pre-ACA benchmarks trended forward. So I am skeptical of the 13% figure published by the AAN, without more information regarding how they calculated the 2015 pre and post ACA figures.

However, it is worth noting a couple of consequences of the pre-ACA figures. One is that these additional payments would have been funded, in part, by an increase in all Part B premiums, including those paid by non-MA members. Avoiding this increase is tantamount to a tax cut for Medicare beneficiaries. Yet the conservative AAN, whom I would expect to applaud anything that has the effect of a tax cut, is criticizing this reduction.

The other consequence is that the remainder of the additional payments would have been drawn from public funds. These funds would come either from the Part A trust fund, or from general revenues. The balance in the trust fund is being drawn down each year, since Medicare payroll tax receipts are less than trust fund obligations. Since the money in the trust fund is invested in treasury bonds, the fund gets the cash it needs by cashing in those bonds. To redeem the bonds, the treasury has to issue more debt.

And, since general revenues are less than expenses, the portion paid from general revenues would actually be paid from additional borrowing as well. So, by reducing the amount that would otherwise have been paid to MA plans, the ACA is reducing the net federal debt. The net debt the amount of real debt after excluding money the government owes itself (like the trust fund).

Taken together, I would expect a conservative think tank to argue in favor of reducing MA payments, to reduce the Part B premium and to reduce the net federal debt. The AAN position seems like a triumph of politics over policy, where an ostensibly conservative organization is promoting public subsidization of MA because a Democratic Congress took the conservative approach and cut the subsidies.

This report will probably be useful in ginning up some high dudgeon among conservative-leaning seniors whose conservative principles are somewhat plastic when it comes to getting government subsidies. Maybe it will help get out the vote in a few districts, if the target population remembers it come November. Otherwise, I’m not sure what the point of this is.

This blog was originally posted on blog.gormanhealthgroup.com.

John Gorman: Under John’s leadership, Gorman Health Group has become the leading professional services and solutions firm for government-sponsored health care, providing thought leadership and expert strategic, operational, and technology-based solutions. Read more.