Lawmakers Debate Cost-Effectiveness of Medicare

Lawmakers of both parties and Health and Human Services Secretary Kathleen Sebelius agreed that Medicare is financially unsustainable, with tens of trillions more in promises than the nation can pay for.

Congressman Bill Flores, R-Texas, raised that with a former director of the Congressional Budget Office or CBO.

"My understanding is that that Medicare is insolvent to the tune of about 60 trillion dollars," Flores said. "Is that about right?"

Douglas Holtz-Eakin, a former head of the CBO which tracks such liabilities, agreed and said "It is infinitely - infinitely - underfunded by any sensible piece of arithmetic."

Medicare also contributes mightily to the nation's deficits and debt. This year, 51 percent of Medicare's cost is paid by general tax revenues, not premiums paid by seniors -- an amount that will soar in coming years.

The new healthcare law seeks to cap future Medicare spending to a measure of inflation, but if it grows faster, something called the Independent Payment Advisory Board, or IPAB, is charged with finding savings.

Sebelius explains that "the board is specifically forbidden by law for making any recommendations that would ration care, reduce benefits, raise premiums, or raise cost sharing, or alter eligibility for Medicare."

That doesn't leave much. So the IPAB would therefore would be limited to calling for cuts to providers such as doctors.

Budget Committee chairman Paul Ryan notes providers only get 80 percent of the private rate now. That's headed to 66 percent, then half of that.

So he argues doctors will just stop treating seniors. " Providers are just going to drop Medicare," he said. "I don't know what you call that. But -- It's rationing under a different word if you say to the provider, 'we're not going to pay you close to what it costs to deliver the service,' they're not going to provide that service."

South Carolina Republican Congressman Mick Mulvaney offers an exaggerated example to make the point.

"The IPAB could come out and say 'as of next year the reimbursement rate for a knee replacement is one dollar ' and that's going to save X number of dollars," he said.

Such a recommendation to set a price for something would be done with an eye toward saving money, but would run the risk that many doctors might not be willing to do a knee replacement under price controls. Nevertheless, democrats argue the criticism is overblown.

Democratic congressman Chris Van Hollen of Maryland said "the independent payment Advisory board is simply one tool to getting it done. It creates a backstop or fail safe proof provision to ensure continued solvency of Medicare if and only if the congress chooses not to act."

Congress can override the IPAB but in the Senate, it would take a three-fifths majority to do so. And given the reluctance of many lawmakers to touch entitlements, what the unelected IPAB does could very well stick.

Most Republicans and some Democrats don't like that, some even support a move to repeal the IPAB altogether, arguing only fundamental reform of Medicare will make a difference, not price controls on medical services.