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Analysis: The health legislation increases the national debt 10%

Health Care ObamaCare 2010

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#1 Palisades

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Posted 27 March 2010 - 10:03 AM

A CNN video segment on this article is here.



http://money.cnn.com...rtune/index.htm
Obama's health care reform: VAT or Sinkhole?

Quote

Attachment obama_he...e.gi.top.jpg

By Shawn Tully, senior editor at large March 26, 2010: 6:35 PM ET

(Fortune) -- In President Obama's 2011 budget, a kind of fiscal "cigarette warning" appears in a box on page 146 under a table displaying a future of big deficits and mounting debt. The Administration, the warning declares, is creating a "Fiscal Commission" to "achieve sustainability over the long-run."

With those bland words, the Administration is acknowledging that the immense weight of the national debt poses a dire threat to the economy, unless America takes radical action. Yet with the signing of the $931 billion healthcare overhaul, fixing future budget problems becomes far more difficult. The reform will immensely swell the amount of federal borrowing, even while the Administration touts the bill as a model of fiscal responsibility.

Even before the bill became law, many economists -- and this writer -- argued  that only one tax could raise the giant revenues needed to escape a ruinous rise in debt: a European-style Value-Added Tax, or VAT...

Tripartite increases in debt

Health care reform swells future debt in three big ways: First, reform plans to pay for the long list of subsidies and benefits by using new revenues from Social Security taxes and other entitlements. In fact, that money is only being borrowed from the Social Security "lockbox." Social Security and the other programs will need it back later to pay out benefits.

Second, the plan has several measures aimed at raising revenues and lowering costs that will probably never happen, either because they impose draconian price controls that will force hospitals to close and doctors to flee, or because they're too unpopular to become law. It also ignores inevitable cost increases by moving them into different legislation. Call that one "phantom funds."

Third, projections on the number of Americans who will collect subsidies are completely unrealistic. That figure will be double or triple the official projections, swamping the already big spending forecasts. Call this one, "lowballing the costs."

To gauge the amount of new debt, it's necessary to add up the lockbox money, phantom funds, and lowballing of costs for two separate periods: the bill's first decade, from 2010 to 2019, and the next one.

2010-2019: $1.2 trillion in health care borrowing

For the first decade, the CBO is projecting a $143 billion reduction in deficits. But in the bill, the Democrats failed to include a more than 20% increase in physician payments called the "Doc Fix," moving it to a separate measure instead. In a letter to Congressman Paul Ryan (R-Wis.), the CBO said that including the over $200 billion Doc Fix, a big phantom funds item, would erase the fiction of deficit reduction, and create shortfall of $54 billion.

The Administration is also counting on lockbox savings. They total almost $520 billion in new Medicare savings and taxes, Social Security levies, and revenues from a long-term entitlement program called The CLASS Act. But none of that lockbox money can be used to pay for healthcare, even though it's officially counted towards "deficit reduction" by the CBO. In fact, the Administration needs to borrow that money from the Medicare, Medicaid and CLASS Act trust funds.

The "lowballing" issue is the biggest, and most overlooked, threat to the entire edifice. The bill grants lavish subsidies, paying most of the premiums for lower and middle class earners who aren't covered by employers. The CBO forecasts that just 24 million Americans will receive these subsidies in 2019. The rub is that companies with lots of medium-to-low-paid workers, in everything from mining to retailing, will be tempted to drop their plans for basic reason: those workers get a far better deal in the subsidized "exchanges" than under employer plans. "About 100 million workers covered by employer plans would be eligible for those subsidies," says James Capretta, a budget official in the second Bush Administration. "You'd see the 'out of the woodwork' effect as employees rush into the subsidized plans."

If the number of subsidized customers doubled to 50 million, the bill's costs would increase by about $580 billion. Adding the $53 billion shortfall from the Doc Fix, the $520 billion in lockbox items, and the $580 billion from raising the number of exchange participants to a 50 million -- replacing lowballing with a more realistic forecast -- and new borrowing required in the first ten years rises to around $1.2 trillion.

2020-2029: A 10% increase in the national debt

In the second decade, the picture is even more perilous. Here, phantom funds become a huge problem. Reform contains three additional measures that theoretically lower future costs, but will probably never happen. First, an excise tax on high-cost plans is slated for 2018. But it's so wildly unpopular with unions that it's been delayed twice, and may never be enacted. Second, the plan would index increases in subsidies at rates well below medical inflation, a plan concocted at the last minute to lower the CBO's "score." This would force Americans in the exchanges to pay a higher percentage of their salaries in insurance premiums, which contradicts the whole point of reform. Third, the legislation creates a "Payment Advisory" board to hold Medicare spending at unrealistically low levels. Medicare's actuary warns that the bill would drive hospitals and doctors out of business, causing shortages in care.

In its letter to Ryan, the CBO forecast the price of the bill if all three of those restrictions were dropped. Their conclusion: The surpluses forecast in the bill would be replaced with roughly $600 billion in deficits in its second decade. In addition, deducting Medicare taxes and savings, which can only be used for Medicare benefits, would add an estimated $1.2 trillion in borrowing.

The bill also faces the lowball problem. Once again, if we forecast that 50 million people will collect subsidies -- a conservative estimate -- the bill's price will increase another $1.3 trillion.

So for the second decade, the bill would swell spending by $600 billion from improbable price controls, $1.2 trillion from eliminating lockbox items, and $1.3 trillion from the flood of new enrollees in subsidized plans, for a total of $3.1 trillion. Add that number to the $1.2 trillion for the first ten years, and the grand total rises to $4.3 trillion.

Shaun Tully's analysis continues with discussion of "The VAT fix" (which would be a huge tax on the middle class) and touches briefly on why hiking income taxes likely wouldn't be able to raise the necessary revenue.

Anyone who knew anything about the fiscal side of this bill knew that the CBO report based on the Democrat's assumptions is a complete joke. Heck, in their report, the CBO even refers their readers to the letter requested by Ryan, in which the CBO analyzes the legislation without some of the accounting gimmicks and unrealistic provisions, and finds (no surprise) that the legislation increases the deficit.

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Edited by Palisade, 27 March 2010 - 10:50 AM.

"When the Fed is the bartender everybody drinks until they fall down." —Paul McCulley

"In truth, 'too big to fail' is not the worst thing we should fear – our financial institutions are now on their way to becoming 'too big to save'." —Simon Johnson

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#2 DWF

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Posted 27 March 2010 - 10:42 AM

Is there anything the government can do and not increase the debt? Even getting out of Iraq will cost billions.
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#3 Palisades

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Posted 27 March 2010 - 10:54 AM

^ There are things the government could do to reduce the deficit; the problem is finding the political will to do it.
"When the Fed is the bartender everybody drinks until they fall down." —Paul McCulley

"In truth, 'too big to fail' is not the worst thing we should fear – our financial institutions are now on their way to becoming 'too big to save'." —Simon Johnson

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#4 DWF

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Posted 27 March 2010 - 11:08 AM

View PostPalisade, on Mar 27 2010, 11:54 AM, said:

^ There are things the government could do to reduce the deficit; the problem is finding the political will to do it.


Clinton was able to find it.
The longest-running science fiction series: decadent, degenerate and rotten to the core. Power-mad conspirators, Daleks, Sontarans... Cybermen! They're still in the nursery compared to us. Fifty years of absolute fandom. That's what it takes to be really critical.

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#5 Palisades

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Posted 27 March 2010 - 11:24 AM

^ It's getting to the point where I actually want Clinton back.
"When the Fed is the bartender everybody drinks until they fall down." —Paul McCulley

"In truth, 'too big to fail' is not the worst thing we should fear – our financial institutions are now on their way to becoming 'too big to save'." —Simon Johnson

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#6 Nick

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Posted 27 March 2010 - 11:48 AM

The government spends most of its money on the military, medicare & social security.  Everything else is a tiny dent in comparison.  If you want serious budget cuts, you've gotta cut from one of those three.

#7 Spectacles

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Posted 27 March 2010 - 02:55 PM

Tully is the definitive, empirical, unbiased source of info on health care reform? He may be right, but I'm reluctant to give a lot of credence to someone who has been obsessively writing stuff like "The Five Freedoms You Will Lose Under Obamacare," stuff that has helped to fuel the hysteria out there.

http://www.factcheck...into-borrowing/
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#8 Palisades

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Posted 27 March 2010 - 03:28 PM

^ So basically FactCheck points to CBO results even the CBO doesn't believe. FactCheck also claims the "doc fix" was handled in a separate bill, but AFAIK that bill never became law. The CBO report on the reconciliation billl assumed the Medicare cuts would happen, continue to happen, and be sustained (which they likely won't). Also, from this CNN article from earlier this month:

Quote

With a 21% cut in Medicare payments slated to take effect later this month, physicians who say they are making an OK living may be reduced to income levels that no longer make their profession viable. That's especially true for those still paying medical school costs and other training.

Edited by Palisade, 27 March 2010 - 03:41 PM.

"When the Fed is the bartender everybody drinks until they fall down." —Paul McCulley

"In truth, 'too big to fail' is not the worst thing we should fear – our financial institutions are now on their way to becoming 'too big to save'." —Simon Johnson

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TWP / An Affirming Flame / Solar Wind / Palisade

#9 Spectacles

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Posted 27 March 2010 - 03:54 PM

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FactCheck also claims the "doc fix" was handled in a separate bill, but AFAIK that bill never became law.

FactCheck provides a link. Click on the blue text. The "doc fix" was in the bill that Bunning held up, along with the extension of unemployment benefits. Now, it looks like the can was merely kicked down the road, but Tully's figures are inaccurate nevertheless. He's used an expense that is not part of the HCR and that is being addressed through separate legislation to argue that the HCR bill will increase the deficit. He may as well add in all related medical costs in various programs throughout the federal government. Why stop here?

It is true that this HCR does not do nearly enough to address systemic problems in Medicare and Medicaid. But that's why it's more accurately described as health insurance reform as it focuses primarily on offering more consumer protections for purchasers of private insurance.
"Facts are stupid things." -Ronald Reagan at the 1988 Republican National Convention, attempting to quote John Adams, who said, "Facts are stubborn things"

"Although health care enrollment is actually going pretty well at this point, thousands and maybe millions of Americans have failed to sign up for coverage because they believe the false horror stories they keep hearing." -- Paul Krugman

#10 Palisades

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Posted 27 March 2010 - 04:06 PM

^ The "doc fix" was part of the original House bill as the AP points out here. Anyway, if you look at Tully's figures for the first decade, you see:  "Adding the $53 billion shortfall from the Doc Fix, the $520 billion in lockbox items, and the $580 billion from raising the number of exchange participants to a 50 million -- replacing lowballing with a more realistic forecast -- and new borrowing required in the first ten years rises to around $1.2 trillion."

So for the first decade, the Doc Fix you're hanging your argument on accounts for $53 billion out of $1.2 trillion of the borrowing.


Spectacles said:

The "doc fix" was in the bill that Bunning held up, along with the extension of unemployment benefits.
Bunning gave in and those unemployment benefits were signed into law.

Edited by Palisade, 27 March 2010 - 04:14 PM.

"When the Fed is the bartender everybody drinks until they fall down." —Paul McCulley

"In truth, 'too big to fail' is not the worst thing we should fear – our financial institutions are now on their way to becoming 'too big to save'." —Simon Johnson

FKA:
TWP / An Affirming Flame / Solar Wind / Palisade

#11 Spectacles

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Posted 27 March 2010 - 04:15 PM

My only argument is that I tend to believe Factcheck over Tully. Factcheck says the Doc Fix was taken care of prior to the HCR passage and is not part of it. Given that Fact.check supports this claim, I tend to believe it.
"Facts are stupid things." -Ronald Reagan at the 1988 Republican National Convention, attempting to quote John Adams, who said, "Facts are stubborn things"

"Although health care enrollment is actually going pretty well at this point, thousands and maybe millions of Americans have failed to sign up for coverage because they believe the false horror stories they keep hearing." -- Paul Krugman

#12 Palisades

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Posted 27 March 2010 - 04:36 PM

^ However it happened, the "doc fix" got removed from the unemployment benefits bill that became law last early this month. It was not passed before ObamaCare became law. Democrats were trying to pass the "doc fix" yesterday by once again adding it to an unemployment benefits extension bill (link). They didn't get it done, and now Congress is on a two-week recess.

Edited by Palisade, 27 March 2010 - 05:33 PM.

"When the Fed is the bartender everybody drinks until they fall down." —Paul McCulley

"In truth, 'too big to fail' is not the worst thing we should fear – our financial institutions are now on their way to becoming 'too big to save'." —Simon Johnson

FKA:
TWP / An Affirming Flame / Solar Wind / Palisade

#13 Spectacles

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Posted 27 March 2010 - 05:48 PM

Hmmm....Then what bill was this?

http://www.allbusine...14037786-1.html

Quote

Senate staves off Medicare-payment reduction: Primary doctors relieved as 21 percent cut is avoided
By Judy Benson The Day, New London, Conn.
Publication: The Day (New London, Connecticut)
Date: Wednesday, March 3 2010
ID_Web_horizontal_sml_white





Quote

But by Tuesday night, intense political pressure from both parties had forced Republican Sen. Jim Bunning of Kentucky to end his obstruction of a bill that includes a seven-month reprieve on the Medicare reduction. The Senate passed the bill, which also maintained unemployment benefits for the long-term jobless and provided stopgap funding for highway programs. The vote was 78-19.

The automatic 21 percent cut, contained in a 1996 law designed to rein in Medicare spending, took effect March 1. Congress usually takes steps to delay the automatic triggering of the cuts, but Bunning had sought to force Democrats to find a way to finance the bill so that it wouldn't add to the federal deficit.

The House had already passed a bill delaying the Medicare payment cut. U.S. Rep. Joe Courtney, D-2nd District, said Tuesday that the 1996 law should be permanently repealed, otherwise veterans with Tricare and the elderly will see reduced access to care.

Quote

The Connecticut State Medical Society, citing figures from its national parent organization, estimates the average primary care doctor in Connecticut earns $100,000 annually, and every individual doctor would have lost $17,000 in annual income if the cut had stayed in effect.

"In order to stay open, we'd have to stop seeing Medicare patients, or see them for less time," said Dr. Steven Johnson of New London. About 30 percent of Johnson's patients receive Medicare. On Monday, his office stopped taking new Medicare patients.

Until March 1, Medicare paid his office $72 for a regular office visit. Under the formula that was in effect for less than two days, it paid $57. Private insurers, Johnson noted, pay $82 for the same visit, but he and others fear a Medicare cut will cause them to make equivalent cuts.

"Health care costs aren't going up because of primary care doctors," he said. "We're just the fall guy."

Dr. Michael Deren of New London, a past president of the state medical society, and other national medical society leaders lobbied lawmakers in Washington, D.C., this week to restore the 21 percent cut and are pushing for a permanent change to the physician payment system. One early version of the health-reform bills would have changed the system, but that provision was eliminated before the final versions voted on by the House and Senate.

"You can't go forward with comprehensive health care reform without out fixing the physicians' payment formulas," he said. "It's no way to run Medicare."

And he's right.

But this was not included in the health care reform bill. I don't know why this up for vote again (and delayed again, of course, by the Party of Hell No), but, if I'm reading it correctly, Factcheck's point is that Tully has added this problem into the costs of the health care reform bill when it is a problem that is being
addressed outside the bill. I'm sure there are other Medicare and Medicaid and SCHIP-related costs that were not addressed by the bill. But is reasonable to go outside the bill and use those costs to determine this bill's effects on the deficit? Honest question. I don't know. I guess the answer depends on what one thinks the bill is and should have done.

It looks to me--and I may be wrong--that this bill, essentially, adds some regulations to the insurance industry, raises revenue by (1) increasing Medicare payroll taxes of people who make over 250,000 a year and (2) by levying fines on large employers who do not provide insurance and (3) by fining people who opt out of the mandated insurance. The increase in Medicare payroll taxes on the wealthy alone would extend the life of Medicare by 9 years. True, it's another instance of kicking the can down the road, but that seems to be all we can do in an era of tea party hysteria and corporate control of DC.

The elements of the bill that result in spending are (1) helping low-income people who make too much to qualify for Medicaid buy insurance, (2) covering more people with Medicaid--and helping the states to do that, (3) assisting employers with the cost of retiree reinsurance, (4) closing the "doughnut hole" in the Medicare prescription plan. And I'm sure that I've left stuff out in both categories: revenue increases and spending.

(And it seems to me that we could have saved a helluva lot of money by allowing drug reimportation and other measures that PhRMA didn't want but which would have closed the doughnut hole quickly and fairly cheaply, but heaven forbid our pharmaceutical manufacturers have to watch their pennies. Better that millions of Americans struggle to pay for medicines or that the government add to its debt to help them do so rather than we regulate pharmaceutical manufacturers--who were among Obama's biggest donors, by the way. And we probably would have saved on retiree reinsurance by allowing people 55 and older to buy into Medicare. It would be interesting to see if such a buy-in would strengthen Medicare and lower costs for individuals and employers and everyone besides insurers, who can charge the hell out of older insurees. And they figure if your older and working, you're a good risk considering the amount they can charge. But heaven forbid we make insurers sacrifice even that demographic--even as we mandate that younger, healthier people buy their products.)

Now, Tully wants to add to the balance sheet of this bill fixing the 21% Medicare reimbursement cut to doctors. This is separate legislation, and it looks like it has to be because it is the result of law passed in the mid-90s to reduce the growth of Medicare. So it actually does need to be flat-out repealed or revised.

But let's say that doesn't matter. Tully has added the cost of fixing the 21% Medicare reimbursement cut to doctors to this bill--an issue that is not addressed by this bill. To give him the benefit of the doubt, maybe Tully is arguing that this 21% cut must be repealed and the cost of it must therefore be added to all projected Medicare costs. If that's the case, and if the CBO didn't account for the cost of fixing that reimbursement cut, then, sure, the bill does not do enough to address rising Medicare costs.

But that's different than claiming that the bill adds to the deficit because of something that the bill does not address and is therefore not part of the bill in the first place.
"Facts are stupid things." -Ronald Reagan at the 1988 Republican National Convention, attempting to quote John Adams, who said, "Facts are stubborn things"

"Although health care enrollment is actually going pretty well at this point, thousands and maybe millions of Americans have failed to sign up for coverage because they believe the false horror stories they keep hearing." -- Paul Krugman

#14 Palisades

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Posted 27 March 2010 - 06:50 PM

^ A permanent "Doc Fix" was included in earlier versions of the bill. The reason the Democrats did this was to get the endorsement of the American Medical Association (CBS). But this sweetener added $245 billion over the first ten years to the cost of the bill. So the Democrats removed it. Then the Democrats tried to give the AMA its sweetener in a separate bill and put the cost off budget, but budget hawks cried bloody murder about that accounting gimmickry.
"When the Fed is the bartender everybody drinks until they fall down." —Paul McCulley

"In truth, 'too big to fail' is not the worst thing we should fear – our financial institutions are now on their way to becoming 'too big to save'." —Simon Johnson

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#15 Mel

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Posted 27 March 2010 - 09:57 PM

Congress only put in a 30 day delay to the 21% cut in doctor  re-imbursement.  Come April 1st, cuts go in effect and Congress won't do anything about it until after their recess.  Presumably, it will be fixed mid-April.  In the meantime, there will be at least a 10 day gap where no reimbursement will be issued to physicians at all (going by previous episodes)--I think so they don't have to go back and issue corrected checks.  This happened in late February/early March (before they passed the 30 day fix) when I was rotating in a small rural Family Medicine practice with a high Medicare patient population.  Needless to say they were just thrilled since that creates a backlog that screws up cash flow badly.

Incidentally, if the cuts aren't fixed, Medicare would apparently pay less than Medicaid in at least some cases.  That would be disastrous.  Medicaid patients have trouble finding doctors because of the low reimbursements.  Imagine if the much larger (and often sicker) Medicare population was to suddenly be put in that situation?  Any financial projection that is based on Medicare cuts staying in place is unrealistic.  The AARP voting block is too strong and they will want access to their doctors.

Edited by Mel, 27 March 2010 - 09:58 PM.


#16 Nonny

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Posted 28 March 2010 - 10:31 AM

View PostPalisade, on Mar 27 2010, 08:54 AM, said:

^ There are things the government could do to reduce the deficit; the problem is finding the political will to do it.
Like Bush?  Oh, wait....
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#17 Nonny

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Posted 28 March 2010 - 10:33 AM

View PostDWF, on Mar 27 2010, 08:42 AM, said:

Is there anything the government can do and not increase the debt? Even getting out of Iraq will cost billions.
Yet another way the previous administration not only left a mess, but mined the field so it would be nearly impossible to clean up.    :(   :angry:
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The once and future Nonny

"Give a man a gun and he can rob a bank, give a man a bank and he can rob the world." Can anyone tell me who I am quoting?  I found this with no attribution.

Fatal miscarriages are forever.

Stupid is stupid, this I believe. And ignorance is the worst kind of stupid, since ignorance is a choice.  Suzanne Brockmann

All things must be examined, debated, investigated without exception and without regard for anyone's feelings. Diderot

#18 Nonny

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Posted 28 March 2010 - 10:40 AM

View PostMel, on Mar 27 2010, 07:57 PM, said:

Incidentally, if the cuts aren't fixed, Medicare would apparently pay less than Medicaid in at least some cases.  That would be disastrous.  Medicaid patients have trouble finding doctors because of the low reimbursements.
Another reason I'm grateful to the VA: saving me from the hell that is Medicaid.  And to Congress: for making the VA stop turning away women veterans, which Congress finally did in 1992.  

Quote

Imagine if the much larger (and often sicker) Medicare population was to suddenly be put in that situation?  Any financial projection that is based on Medicare cuts staying in place is unrealistic.  The AARP voting block is too strong and they will want access to their doctors.
An unimaginable horror.     :(
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"Give a man a gun and he can rob a bank, give a man a bank and he can rob the world." Can anyone tell me who I am quoting?  I found this with no attribution.

Fatal miscarriages are forever.

Stupid is stupid, this I believe. And ignorance is the worst kind of stupid, since ignorance is a choice.  Suzanne Brockmann

All things must be examined, debated, investigated without exception and without regard for anyone's feelings. Diderot

#19 Spectacles

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Posted 28 March 2010 - 11:04 AM

Quote

Mel: Congress only put in a 30 day delay to the 21% cut in doctor re-imbursement. Come April 1st, cuts go in effect and Congress won't do anything about it until after their recess. Presumably, it will be fixed mid-April. In the meantime, there will be at least a 10 day gap where no reimbursement will be issued to physicians at all (going by previous episodes)--I think so they don't have to go back and issue corrected checks. This happened in late February/early March (before they passed the 30 day fix) when I was rotating in a small rural Family Medicine practice with a high Medicare patient population. Needless to say they were just thrilled since that creates a backlog that screws up cash flow badly.

Thanks, Mel. I wondered what the heck was going on. This absolutely must be fixed permanently. The problem, of course, is that it means increasing revenues, which is always unpopular. But it is imperative that doctors be compensated for their services.
"Facts are stupid things." -Ronald Reagan at the 1988 Republican National Convention, attempting to quote John Adams, who said, "Facts are stubborn things"

"Although health care enrollment is actually going pretty well at this point, thousands and maybe millions of Americans have failed to sign up for coverage because they believe the false horror stories they keep hearing." -- Paul Krugman



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