The new summer blockbuster “Inception” features spectacular special effect sequences of towering edifices exploding, crumbling, and otherwise disintegrating in a film that addresses the fine line between reality and a dream state.  Right before the film’s protagonists emerge from medically-induced dream states, they experience instability, turbulence, and ultimately the total collapse of their immediate physical environments.  These sequences, which are awesome to behold on the big screen, are reminiscent of what is happening now in the real world with regard to the fiscal projections made about President Obama’s healthcare bill, only a lot less entertaining.    

During the often acrimonious debate over the PPACA (Patient Protection and Affordable Care Act), better known as Obamacare, the Congressional Budget Office (CBO) was required to weigh in on various provisions of the bill.  Unfortunately, CBO is constrained to scoring and delivering opinions about the language it has in hand, and during much of the debate, the legislation featured gaping holes in many sections.  As former Comptroller General David Walker said on March 19, 2010, “…they have handcuffs on and are in a straitjacket.  They are required by law to make certain assumptions that don't pass a straight-face test.  They’re required by law to assume that Congress is going to do everything they say they’re going to do despite the fact that there’s clear and compelling evidence that they never have and they probably never will in certain regards.  For example, you know, cutting provider reimbursements dramatically.  Well, all right, don’t hold your breath.”

So, as House Speaker Nancy Pelosi (D-Calif.) predicted, Congress had to pass the bill for everyone to find out what was in it.   The fiscal assumptions underpinning the PPACA started to crumble almost immediately after the bill’s enactment. 

On April 22, 2010, Medicare Actuary Richard S. Foster revealed that PPACA will increase federal health spending by $311 billion over the next decade and likely much more. 

In early August, President Obama and administration spokespersons made a lot of media hay out of the release of the Medicare Trustees’ most recent report on the financial health of the program, claiming that the PPACA will extend the life of Medicare by another 12 years (which isn’t really much to crow about in the first place).  However, in an unprecedented move, Foster issued a separate memorandum, which he mellifluously dubbed “Projected Medicare Expenditures under an Illustrative Scenario with Alternative Payment Updates to Medicare Providers.”

First and foremost, Foster stated, “The Trustees Report is necessarily based on current law; as a result of questions regarding the operations of certain Medicare provisions, however, the projections shown in the report do not represent the ‘best estimate’ of actual future Medicare expenditures.  The purpose of this memorandum is to present an alternative scenario to help illustrate and quantify the potential magnitude of the cost understatement under current law.”

The actuary drew taxpayers’ attention to one of the pivotal spokes in the administration’s reform scenario; the so-called “doc fix.”  A reduction in payments to doctors was supposed to have provided $330 billion over 10 years to offset the costs of PPACA.  The original provision enabling the annual downward adjustments to doctors’ fees was enacted in 1997 as part of the Balanced Budget Act, but starting in 2003, Congress has pushed the politically unpalatable cuts off to the next fiscal year, and they have never been adopted. 

The “doc fix” for this year has been punted to December 1, 2010.  The Medicare actuary states the obvious in his report, which is that “Multiple consecutive years of large negative updates are extremely unlikely to occur.  In fact, Congress has overridden all of the scheduled reductions from 2003 through November 2010.  Moreover, the scheduled −23.0 percent update for December 2010 is four times the size of most of those previously avoided.  Despite their improbability, the negative physician updates are scheduled to occur under current law and are therefore included in the Part B estimates shown in the 2010 Medicare Trustees Report.”

The actuary went on to debunk another of the assumptions contained in the Trustees’ report.  Before the passage of the bill, Medicare providers were scheduled to receive annual payment increases based on economy-wide price indices.  The new healthcare law calls for those price increases to be reduced every year for the next 10 years, as an incentive to Medicare providers to ratchet up productivity and squeeze out systemic waste and inefficiencies, an excellent goal considering that Medicare loses at least $60 billion annually to waste, fraud, and abuse. 

Unfortunately, the actuary pointed out that, historically, productivity gains in the healthcare sector have been much lower than in other sectors of the economy because of the labor intensive nature of the work.  And when attempts were made to implement cuts to inpatient Medicare services payments between 1998 and 2002, Congress stepped in to waive the reductions.  Even so, nearly two-thirds of hospitals are losing money on Medicare inpatient services today.  The actuary concludes that the reductions are certain to lead to access problems for Medicare patients.  It is highly unlikely that Congress will stand by and allow such a scenario to unfold; political pressure would force them to take action to pay providers more and staunch their exodus from the program.  Another pillar of Obamacare falls apart. 

Almost from its inception, the promises and prognostications made by supporters of Obamacare ignored or misrepresented reality.   When President Obama and his congressional allies talked incessantly about bending the costs curve down, claimed costs would be offset, and blindly repeated the mantra that the budget-busting bill would not add to the country’s deficit, critics said “in your dreams.”  Now the critics are right and it is more like “in your nightmares.”