David Gratzer

More worrisome is this: in liberal circles, it’s popular to argue that Congressional efforts to control Medicare costs under the Sustainable Growth Rate (SGR) formula have been overly successful. James R. Horney and Paul N. Van de Water make exactly this point in a publication for the liberal Center on Budget and Policy Priorities. They write: “Even though Congress did not allow the full cuts required under the SGR formula to take effect, it has still cut the physician reimbursement rate substantially – at its current level, the reimbursement rate in 2010 will be 17 percent below the rate for 2001, adjusted for inflation.” Picking up on this point, Paul Krugman recently argued that Medicare has been historically very successful at reigning in costs. But praising Medicare cost containment in a time of heavy health-care cost inflation is like praising Lehman Brothers for making good investments in Latin America when the market for subprime mortgages was imploding.

Let’s put this in perspective: health inflation was 3.4 percent last year, just over double the basic inflation rate. Tellingly, the worst cost increases were experienced by Medicare (costs were up 8.6 percent), and Medicaid (9.9 percent).

Unfortunately, the White House and Congress squandered a great opportunity to bend the cost curve downwards, opting instead for the status quo. The quiet congressional vote in June shows how far the administration has strayed from its reform rhetoric. If we are ever to reign in health care spending, we need leaders who will make tough choices and tough cuts. Their rhetoric must become reality.

David Gratzer

Dr. David Gratzer, a physician, is a senior fellow at the Manhattan Institute. David Gratzer's most recent book is Why Obama's Government Takeover of Health Care Will Be a Disaster (Encounter Books, 2009).