The new health reform law wrings $390 billion in savings from Medicare over the next decade to help pay for health care reforms—but spending on the program will continue to rise.
How can the new legislation reduce Medicare costs and still spend millions more dollars on improvements like closing the gap in drug coverage and offering free preventive care? Here’s a quick lesson in Medicare math.
These are cuts in future increases, not cuts in services, experts explain.
Medicare spending has grown about 8 percent annually over 20 years, according to the Congressional Budget Office, an independent arm of Congress. The law could slow down the annual increase in spending to about 6 percent over the next 20 years, the CBO has reported.
For example, of the projected $390 billion in savings—the latest estimate from Congressional Research Service—$196 billion comes from smaller increases in payments to hospitals, nursing homes, home health workers and other medical providers. But physicians who work in primary care will be rewarded with a 10 percent bonus. Hospitals that prevent readmissions or hospital-acquired infections will be paid more than those that do not. The American Hospital Association and the American Medical Association were among the many health care organizations that backed the legislation, along with advocacy groups.
Medicare Advantage Another piece of the $390 billion savings, about $136 billion, comes from reductions in subsidies paid to private health insurance plans, called Medicare Advantage, that provide medical and drug coverage to about one of four people in Medicare. Currently, Medicare pays the private plans an average of 14 percent more to care for a member than it would cost if that person remained in traditional Medicare.
In 2012, the government will start lowering these overpayments to Medicare Advantage plans. Insurers contend they will be forced to cut benefits. But the law prohibits plans from reducing or eliminating essential guaranteed Medicare benefits. It also protects plan members by requiring that at least 85 cents of every dollar insurers receive is spent on benefits.
Guarantees The law also requires Medicare to spend more wisely. For example, a new independent Medicare advisory board is expected to save the program $16 billion over 10 years. Cracking down on fraud and waste will save an estimated $7 billion. Even bonus payments and innovations aimed at improving patient care are intended to produce a long-term payoff: People who get more effective treatment can recover more quickly from medical setbacks, and that saves Medicare money, too.
Finally, the law comes with a Medicare warranty in Section 3601: Nothing in the law can cut current Medicare benefits, and the Medicare savings it achieves “shall extend the solvency of the Medicare trust funds, reduce Medicare premiums and other cost-sharing for beneficiaries, and improve or expand guaranteed Medicare benefits and protect access to Medicare providers.”
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Other Insurance Situations
Wednesday, May 5, 2010
Health Care Cost Increase Is Projected
By ROBERT PEAR
WASHINGTON — A government analysis of the new health care law says it will not slow the overall growth of health spending because the expansion of insurance and services to 34 million people will offset cost reductions in Medicare and other programs.
The study, by the chief Medicare actuary, Richard S. Foster, provides a detailed, rigorous analysis of the law.
In signing the measure last month, President Obama said it would “bring down health care costs for families and businesses and governments.”
But Mr. Foster said, “Overall national health expenditures under the health reform act would increase by a total of $311 billion,” or nine-tenths of 1 percent, compared with the amounts that would otherwise be spent from 2010 to 2019.
In his report, sent to Congress Thursday night, Mr. Foster said that some provisions of the law, including cutbacks in Medicare payments to health care providers and a tax on high-cost employer-sponsored coverage, would slow the growth of health costs. But he said the savings “would be more than offset through 2019 by the higher health expenditures resulting from the coverage expansions.”
The report says that 34 million uninsured people will gain coverage under the law, but that 23 million people, including 5 million illegal immigrants, will still be uninsured in 2019.
Republicans said the report vindicated their concerns about the law, which was approved without a single Republican vote. The White House pointed to bright spots in the report and insisted that the law would help bring down costs. In 2004, when Mr. Foster raised questions about cost estimates by the Bush administration, Democrats lionized him as a paragon of integrity.
Mr. Foster says the law will save Medicare more than $500 billion in the coming decade and will postpone exhaustion of the Medicare trust fund by 12 years, so it would run out of money in 2029, rather than 2017. In addition, he said, the reduction in the growth of Medicare will lead to lower premiums and co-payments for Medicare beneficiaries.
But, Mr. Foster said, these savings assume that the law will be carried out as written, and that may be an unrealistic assumption. The cuts, he said, “could become unsustainable” because they may drive some hospitals and nursing homes into the red, “possibly jeopardizing access to care for beneficiaries.”
Nancy-Ann DeParle, director of the White House Office of Health Reform, said that fear was unfounded.
Mr. Foster’s report, which analyzes the effect of the law on national health spending of all types, has a different focus from studies by the Congressional Budget Office, which concentrated on federal spending and revenues and concluded that the law would reduce budget deficits by a total of $143 billion over 10 years.
In his report, Mr. Foster made these points:
¶The government will spend $828 billion to expand insurance coverage over the next 10 years. Expansion of Medicaid accounts for about half of the cost. The number of Medicaid recipients will increase by 20 million, to a total of 84 million in 2019.
¶People who go without insurance and employers who do not provide coverage meeting federal standards will pay $120 billion in penalties from 2014 to 2019. Individuals will pay $33 billion of that amount, while employers pay $87 billion.
¶The law will reduce consumers’ out-of-pocket spending on health care by $237 billion over 10 years, to a total of $3.3 trillion.
Cuts in federal payments to private Medicare Advantage plans will “result in less generous benefit packages,” the report said. By 2017, it said, “enrollment in Medicare Advantage plans will be lower by about 50 percent, from its projected level of 14.8 million under the prior law to 7.4 million under the new law.”
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WASHINGTON — A government analysis of the new health care law says it will not slow the overall growth of health spending because the expansion of insurance and services to 34 million people will offset cost reductions in Medicare and other programs.
The study, by the chief Medicare actuary, Richard S. Foster, provides a detailed, rigorous analysis of the law.
In signing the measure last month, President Obama said it would “bring down health care costs for families and businesses and governments.”
But Mr. Foster said, “Overall national health expenditures under the health reform act would increase by a total of $311 billion,” or nine-tenths of 1 percent, compared with the amounts that would otherwise be spent from 2010 to 2019.
In his report, sent to Congress Thursday night, Mr. Foster said that some provisions of the law, including cutbacks in Medicare payments to health care providers and a tax on high-cost employer-sponsored coverage, would slow the growth of health costs. But he said the savings “would be more than offset through 2019 by the higher health expenditures resulting from the coverage expansions.”
The report says that 34 million uninsured people will gain coverage under the law, but that 23 million people, including 5 million illegal immigrants, will still be uninsured in 2019.
Republicans said the report vindicated their concerns about the law, which was approved without a single Republican vote. The White House pointed to bright spots in the report and insisted that the law would help bring down costs. In 2004, when Mr. Foster raised questions about cost estimates by the Bush administration, Democrats lionized him as a paragon of integrity.
Mr. Foster says the law will save Medicare more than $500 billion in the coming decade and will postpone exhaustion of the Medicare trust fund by 12 years, so it would run out of money in 2029, rather than 2017. In addition, he said, the reduction in the growth of Medicare will lead to lower premiums and co-payments for Medicare beneficiaries.
But, Mr. Foster said, these savings assume that the law will be carried out as written, and that may be an unrealistic assumption. The cuts, he said, “could become unsustainable” because they may drive some hospitals and nursing homes into the red, “possibly jeopardizing access to care for beneficiaries.”
Nancy-Ann DeParle, director of the White House Office of Health Reform, said that fear was unfounded.
Mr. Foster’s report, which analyzes the effect of the law on national health spending of all types, has a different focus from studies by the Congressional Budget Office, which concentrated on federal spending and revenues and concluded that the law would reduce budget deficits by a total of $143 billion over 10 years.
In his report, Mr. Foster made these points:
¶The government will spend $828 billion to expand insurance coverage over the next 10 years. Expansion of Medicaid accounts for about half of the cost. The number of Medicaid recipients will increase by 20 million, to a total of 84 million in 2019.
¶People who go without insurance and employers who do not provide coverage meeting federal standards will pay $120 billion in penalties from 2014 to 2019. Individuals will pay $33 billion of that amount, while employers pay $87 billion.
¶The law will reduce consumers’ out-of-pocket spending on health care by $237 billion over 10 years, to a total of $3.3 trillion.
Cuts in federal payments to private Medicare Advantage plans will “result in less generous benefit packages,” the report said. By 2017, it said, “enrollment in Medicare Advantage plans will be lower by about 50 percent, from its projected level of 14.8 million under the prior law to 7.4 million under the new law.”
More in Money & Policy (19 of 50 articles)
Senate Bill Sets a Plan to Regulate Premiums
Read More »
Close
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