Committee for a Responsible Federal Budget

Unpaid-for Doc Fix Could Cost Trillions over Long Run

Mar 14, 2014 | Health Care

Proposals to "pay for" (or not pay for) a repeal of the Sustainable Growth Rate (SGR) formula have come out this week, and the verdict has been mostly not good. In a timely letter to the Senate Budget Committee, the Centers for Medicare and Medicaid Services (CMS) actuaries have shown just how important responsibly offsetting a permanent doc fix can be for the long-term fiscal health of Medicare and our country.

The analysis looks at an illustrative permanent doc fix that would add $2.3 trillion on net to Medicare Part B spending over the next 75 years on a present value basis (notably, the illustrative fix is somewhat different -- and more expensive -- than the current legislation under consideration). The $2.3 trillion figure is the net result of $3.1 trillion of gross spending increases offset by $800 billion of increased premiums (since Part B premiums are determined as a percentage of program costs). That would increase the gap between Part B spending and dedicated financing by about 15 percent above the current law estimate.

Long-Term Effect of a Permanent Doc Fix (Trillions of Dollars)
 75-Year Present Value
Current Law Part B Financing Gap$15.7
Permanent Doc Fix$3.1
Part B Premiums-$0.8
Alternative Part B Financing Gap$17.9

Source: CMS

Again, note that this estimate is not an exact modeling of the current legislation under consideration. Whereas the prominent doc fix legislation would increase physician payments by 0.5 percent per year through 2018 and then freeze payments through 2023, the actuaries assume payments will increase 0.7 percent per year through 2023. Beyond then, the legislation would increase payments annually by 0.5 or 1 percent, whereas the actuaries assume payment updates will gradually increase to GDP per capita growth plus 1 percent by 2037 and remain there for the next 50 years.

Still, the analysis gives an idea of the magnitude of the spending increase involved and shows that simply writing off the cost of repealing the SGR is foolish. The Medicare Trustees have previously shown how much Medicare spending would increase as a percent of GDP (middle line in the graph below), and it is not insignificant: spending would be 0.7 percentage points of GDP higher in 2087.

The bipartisan, bicameral agreement on how to replace the flawed SGR formula to better reward quality over quanity of care is encouraging, but the centrality of Medicare to our nation's long-term fiscal sustainability demands that it not just be added to the credit card. Offsetting "doc fixes" to date has led to important, if small, reforms to Medicare, and a permanent fix offers lawmakers the chance to do even more to improve the program for its beneficiaries.

Click here to read the letter.