Surprise: Obama Administration Again Delays Obamacare's Medicare Cuts

Posted: Apr 08, 2014 4:25 PM

Nobody -- and I mean nobody -- should be surprised by this:

Amid heavy pressure from insurers, lawmaker and advocates, the Obama administration has backed off proposed cuts to Medicare Advantage for the second year in a row. They’ll rise by 0.4 percent in 2015 instead of undergoing the originally proposed 1.9 percent cut....“The changes CMS included in the final rate notice will help mitigate the impact on seniors, but the Medicare Advantage program is still facing a reduction in payment rates next year on top of the 6 percent cut to payments in 2014,” said [AHIP] president Karen Ignagni.

Let's recap the politics:

Step 1 - Democrats pass Obamacare, the funding model for which relied on $716 billion in (double-counted) cuts to Medicare. The original purpose of this actuarial wizardry was to manufacture a favorably low CBO "score" of the bill, providing a fig leaf to reluctant Democrats. An updated CBO score projects Obamacare's costs to exceed $2 trillion over its first decade of implementation.

Step 2 - Republicans object to these Medicare cuts being used to fund a new, unpopular healthcare program, and attempt to repeal the reductions. Democrats kill the GOP's effort.

Step 3 - With the cuts finally set to become reality in a tough election year, anxious Democrats suddenly realize that they oppose them after all, and demand action. These are the same Democrats who voted against the Republican attempts mentioned in step two, and the same Democrats who falsely denied that the scheduled cuts would impact seniors as recently as the 2012 election cycle.

Step 4 - The Obama administration finds a pretext to push off the cuts beyond the next election, thus sparing Democrats yet another Obamacare headache at the polls. This isn't a permanent solution, of course, nor does it erase vulnerable Democrats' votes in favor of the cuts, and against rescinding them.

Beyond the politicking, Reason's Peter Suderman explains why this whole episode underscores how hard it is to actually cut Medicare:

This is not the first time that Medicare Advantage cuts have conveniently transformed into increases. Last year, CMS initially proposed a 2.2 percent cut—which, over the course of a few months, evolved into a 3.3 percent hike. In both years, what happened between the initial proposal and the final was the same: an intense lobbying campaign by insurers who get paid by the program, as well as heavy political pressure from both sides of the aisle. Insurers began their campaign in January this year, before the proposed cuts were even formally announced. A bipartisan group of 40 senators, led by Sen. Mike Crapo (D-Idaho) and Sen. Chuck Schumer (D-N.Y.), sent a letter to CMS head Marilyn Tavenner expressing concern about the cuts. "Given the impact that payment policies could have on our constituents," the letter said, "we ask that you prioritize beneficiaries’ experience and minimize disruption in maintaining payment levels for 2015."

Question: Now that a significant funding stream for Obamacare has been temporarily shut off (and may never be turned back on), how does that impact the law's fiscal health and healthcare-related deficits?