Doc Fixes And Donut Holes

The GOP has argued that because of the doc fix, the health bill costs more than Dems say. Krugman responded:

First of all, says the analysis, the true cost of reform includes the cost of the “doc fix.” What’s that? Well, in 1997 Congress enacted a formula to determine Medicare payments to physicians. [. . .] Instead of changing the formula, however, Congress has consistently enacted one-year fixes. And Republicans claim that the estimated cost of future fixes, $208 billion over the next 10 years, should be considered a cost of health care reform. But the same spending would still be necessary if we were to undo reform.

Today, Ezra Klein touts the idea that the fix of the donut hole in the Medicare prescription drug benefit was how 4 million people benefit from the health bill. But isn't this basically the other side of the coin Krugman is condemning? The fix of the donut hole was hardly the point of the bill (and certainly not what the GOP is objecting to) and could have been done without "reform," just as the "doc fix" is not really part of the health bill either. More . . .

Remember the 787 billion dollar stimulus bill? And how over 70 billion dollars of it was merely the yearly extension of the AMT adjustment? The counting of doc fixes and donut hole patching is more of the same.

Maybe the wonk gap is not as big as Krugman thinks.

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    The doc fix was going to happen no matter what, (5.00 / 1) (#13)
    by steviez314 on Wed Jan 19, 2011 at 08:52:12 PM EST
    whether in this bill or another one, just like it had been every year for the past 13 years.

    Not so the donut hole fix.  That's the point.

    Yep. (none / 0) (#15)
    by Buckeye on Thu Jan 20, 2011 at 08:20:30 AM EST
    The donut hole has been around for the last 4 years and nothing was being done about it.  Fixing it adds real cost.  It is so difficult due to its cost that it has to be phased out over 10 years.  Just because fixing it was popular and both parties agreed does not guarantee if or when it would change.  If you are going to pass a bill (Obamacare) and brag as one selling point that it fixes this problem, it needs to be included in the economics.

    The Medicare SGR has not been relevant for 13 years.  Once it is fixed, it adds no real cost (just the law changes to match what we are actually doing).  Offsetting savings of Obamacare against fixing this non-expense would not be prudent as an analysis exercise.


    Great title. (none / 0) (#1)
    by oculus on Wed Jan 19, 2011 at 12:21:54 PM EST

    Wasn't Krugman speaking of the doc fix (none / 0) (#2)
    by Buckeye on Wed Jan 19, 2011 at 12:42:18 PM EST
    to object to the GOP's fradulent charge that the CBO is overstating savings in the health bill?  The SGR was creating in 1997 and has been accruing one year fixes since 2003.  So, if the doc fix was included in the health bill, the proper way to do the analysis is for the CBO to alter the baseline the savings are applied against so the bill still saves the same amount.  The issue is not that the bill is overstating savings, but understating the baseline the savings are applied against.

    Is that really the same thing the CBO is doing with how they include closing the donut hole?

    Huh? (none / 0) (#3)
    by Big Tent Democrat on Wed Jan 19, 2011 at 12:49:12 PM EST
    The doc fix is not included in the "costs of the bill" - either through the baseline or changes methods for good reason - it is a policy that stands apart from the health bill.

    So too does the donut hole fix.

    I do not understand how you would exclude one and not the other.  


    Because the doc fix (none / 0) (#4)
    by Buckeye on Wed Jan 19, 2011 at 12:58:46 PM EST
    does not impact the economics at all, the other does.  Current law before Obamacare had all doctor reimbursement rates at the 1997 SGR.  That was unrealistic and was not being paid since 2003.  What someone like Ryan was arguing is that the baseline the CBO was using assumed the 1997 SGR rates because that was current law.  Ryan argued that it is understating reimbursement rates to doctors by over $200 billion through the next 10 years.  That is correct.  But it should not be counted against the incremental economics of Obamacare.  We are understating the true baseline we will spend.  

    The donut hole is not over/understating expenses the way I understand it.  We will definately not spend that money unless something changes.  If Obamacare changes it, then it should be included in the incremental economics of the bill.

    If Obamacare was not passed, we would still spend the extra money on doctor's reimbursements.  If Obamacare was not passed, we would not spend the extra money closing the donut hole.  


    I think that is incorrect (none / 0) (#5)
    by Big Tent Democrat on Wed Jan 19, 2011 at 01:54:15 PM EST
    in that the doc fix is in fact also, in theory, in this bill and in future funding of this bill, just as the donut hole is.

    Either you include this extraneous stuff in discussing the health bill or you don't.


    What is fallacious about the (none / 0) (#6)
    by Buckeye on Wed Jan 19, 2011 at 02:33:52 PM EST
    right's attack on not including the doc fix in Obamacare's CBO scorings, but that it in fact should NOT have been included in the savings, but the donut hole fix SHOULD be (which is what the left wonks are arguing) is in the scoring and what actually happens to real spending.

    Let's take an example and I will use make believe round numbers for simplicity.  Assume we spend $1 trillion per year on health care in this country - or $10T over the next ten years - before Obamacare is passed based on the current run rate (extrapolating current law).  It assumes the 1997 SGR for doctor's reimbursements.  The CBO then takes Obamacare, applies it to that baseline, and comes to the conclusion we would then spend only $9T - a savings of $1T.  Along comes Ryan who says that the $9T assumes unrealistic doctor's reimbursement rates, we will actually spend $500 billion more.  Therefore we will actually spend $9.5T.  While that is true, the problem is that we are understating the baseline.  The proper analysis is to adjust the baseline to $10.5T.  The CBO would then layer on Obamacare and show we would only spend $9.5T - still a savings of $1T.  The difference between the $9T and the $9.5T is not that we are overstating the savings of Obamacare (what Ryan fradulently wants us to believe) but that we are understating the baseline we are applying those savings against.  Since adjusting the baseline cannot be done, the best approach is to exclude it entirely from the scoring.  Leaving it out is prudent otherwise the first $500 billion of savings in my example would go not to show a reduction in health care spending but to pay for something that is not really an incremental expense.  All we are doing is changing the law to match what we are actually doing (reimbursing doctors at higher rates).  The GOP wants to fix one of their poor policy decisions by conveniently sweeping it under the umbrella of Obamacare while making it easier to campaign against it by showing less savings on something that is not a real expense.  Passing or not passing Obamacare does nothing to change what we will actually do.  There is no way we will reimburse doctors at the SGR.  That $500B will get spent whether we pass the bill or not.

    The donut hole is different.  The baseline is properly reflecting what we are spending - nothing.  We are not doing one year fixes.  If current law continues, we will continue to not pay seniors within that threshold.  If Obamacare passes, that would change and we start spending real incremental money we otherwise wouldn't to close that gap.  Therefore, if Democratic leadership wants to sell to the American people that the passage of Obamacare closes the donut hole, the CBO is going to demand it be included in the economics of the bill.  Something will change.  If Obamacare passes, we spend more money on seniors.  If Obama wants to show that his bill is deficit neutral over ten year and saves over a trillion dollars over 20 years as well as closes the donut hole, his bill needs to offset the incremental costs of closing the donut hole from current run rates and then show additional savings for the CBO to be undertaking proper analysis.

    Make no mistake about it, the gap in wonks Krugman talks about is large.


    This is facile (none / 0) (#7)
    by Big Tent Democrat on Wed Jan 19, 2011 at 02:40:19 PM EST
    "The donut hole is different.  The baseline is properly reflecting what we are spending - nothing.  We are not doing one year fixes.  If current law continues, we will continue to not pay seniors within that threshold."

    No one opposes the donut hole fix. It is not in dispute.

    I understand there is this silly repeal stuff going on, but the GOP will propose a donut hole fix alongside it.

    To claim it is a result of "health care reform" is absurd to me.


    Does not matter whether anyone disputes (none / 0) (#8)
    by Buckeye on Wed Jan 19, 2011 at 02:56:07 PM EST
    it or not.  What Krugman et al are arguing is that the doc fix does not involve real money while the donut hole does.  It is absolutely correct to include donut hole but exclude doc fix as a financial analysis exercise if you want the donut hole to be a selling point of Obamacare.

    Now, if your argument is that since the donut hole and the doc fix are problems that occurred under republican leadership and are not germane to authentic health care reform so we should have excluded them, fine.  But that is a different argument.  The question I would then have is how would the politics work?  Obama needs as many selling points as he can.  Closing the donut hole could be a good selling point especially if you are passing a bill that cuts medicare spending (medicare advantage) for example that the GOP will run against.  Also, how difficult would it be to pass a stand alone bill that does the doc fix and closes donut hole?  Let's say the cost to fix the donut hole is $300B (I don't know what it actually is), then those stand alone bills would show a $500B spending increase.  Only $300B would be real but try explaining that to the American people.  Although closing the donut hole is popular, doing these as stand alone bills when the right is hammering you over deficits and government spending would be tough politically.  I think Obama did the right thing in these areas by punting on the doc fix since this does not involve real money, and closing the donut hole in Obamacare to help give him a popular selling point for his legislation.


    Noth involve real money (none / 0) (#9)
    by Big Tent Democrat on Wed Jan 19, 2011 at 03:06:31 PM EST
    The argument is that one involves Money and/or benefits that result from the health bill while the other one does not.

    that is completely facile. Both involve issues that simply are unrelated to the disputed parts of the health bill


    Mmmm- donuts (5.00 / 1) (#12)
    by someanonguy on Wed Jan 19, 2011 at 04:06:56 PM EST
    I don't know whether the donut hole would have been fixed or not without "Obamacare".  It had certainly been around for a few years with no one doing anything about it.  Either way, I'm not sure why its status as disputed or undisputed should matter.

    If you buy a car and the payment is $500 a month, whether this is an increase in your expenses or not depends on what you were doing previously.  Whether everyone agrees you should have a car or not doesn't really matter.

    If you previously had no car (donut hole), your expenses have gone up $500.

    If you were previously renting a car for $500 a month (doc fix), your expenses remain the same.

    Excluding the doc fix and including the donut hole in calculating the cost associated with the health care reform bill may be facile (I have absolutely zero familiarity with standards for CBO scoring), but it certainly isn't illogical.


    Yep. (none / 0) (#16)
    by Buckeye on Thu Jan 20, 2011 at 08:34:50 AM EST
    The wonks are explaining this correctly from a true financial analysis exercise.  Also, while Dems have not been very good at politics in the past, excluding the doc fix and including fixing the donut hole was the right play.  The doc fix would add faux cost of $200 billion that Obamacare would have to pay for that no one would care about (doctors have not been reimbursed at that rate and it has not been relevant for 13 years).  The donut hole is a valid selling point of Obamacare in that seniors will start getting offsets for drug costs within that threshold that they have not been getting for the last 4 years.  There is no way the CBO would let Obama sell his bill as fixing this problem without including it in the scoring.

    The fact that it is (none / 0) (#10)
    by Buckeye on Wed Jan 19, 2011 at 03:39:19 PM EST
    "unrelated to the disputed parts of the health bill" does not mean that the Obamacare bill did not close the donut hole.  It did.  Obamacare phases it out therefore it needed to be included in the economics of the bill.  I have no idea whether it would have eventually been closed or not but it has been in place for 4 years.   The SGR rate has not been relevant for 8 years.  It should not have been included in the economics of the bill.

    But this is the crux (none / 0) (#11)
    by Big Tent Democrat on Wed Jan 19, 2011 at 03:57:00 PM EST
    " I have no idea whether it would have eventually been closed." It would have. Not a doubt in the world.

    In terms of political argumentation, this is fine to play this game - indeed it is sort of the point of my linked post on the Wonk Gap - everyone plays games, but the GOP wonks play it better.


    FYI, the donut hole is still there, just smaller (none / 0) (#14)
    by vicndabx on Thu Jan 20, 2011 at 06:49:58 AM EST

    Starting January 1, 2011, if you reach the coverage gap in your Medicare Part D coverage, you will automatically get a 50% discount on covered brand-name drugs. You receive the discount when you buy them at a pharmacy or order them through the mail, until you reach the catastrophic coverage phase.

    You will also get a 7% discount on generic drugs while in the Donut Hole.

    You can expect additional savings on your covered brand-name and generic drugs while in the coverage gap over the next 10 years until the gap is closed in 2020.