Government study: Overhaul will result in Medicare savings
Published: August 2,2010
WASHINGTON — The new health overhaul law will start producing savings for Medicare right away, and over time add 12 years of solvency to the program’s giant trust fund for inpatient care, the Obama administration says in a report to be released today.
Medicare will save about $8 billion by the end of next year, and $575 billion over the rest of the decade, the report said.
Release of the analysis comes ahead of the official annual financial checkup for Social Security and Medicare from the program’s trustees, expected as early as this week. It provides support for the administration’s position that the health care law secures and strengthens healthcare for seniors.
Republicans have argued that spending cuts called for in the law will undermine Medicare, and the government’s own nonpartisan analysts have questioned whether some of the reductions are unrealistic. Polls show that seniors are more skeptical of the health overhaul than younger people, a political dilemma for Democrats in the fall congressional elections.
The Obama administration report says Medicare will be stronger as a result of the health care law.
“The passage of the Affordable Care Act marks a turning point in the unsustainable rate of cost growth in our healthcare system,” said an advance copy of the administration’s analysis. The new law “reforms the Medicare program’s payment and delivery systems to incentivize high-quality care, appropriately price services, modernize the healthcare sector and fight waste, fraud and abuse.”
The spending cuts will help to lower seniors’ monthly premiums by nearly $200 annually by 2018.
Medicare spending will keep increasing, only not as fast. Under the law, spending will rise by 5.3 percent a year on average over the next decade, compared to 6.8 percent without the cuts.
The Medicare trust fund will remain solvent until 2029, a gain of more than a decade from 2017. However, critics say trust fund solvency will only improve on paper, since actual savings from the Medicare cuts would have been spent to provide coverage for more than 30 million uninsured Americans.
The single biggest slice of the Medicare cuts is from reductions in projected payment increases to hospitals and other providers over the next 10 years. That’s followed by cuts to private insurance plans that now cover about one out of four seniors. Nonpartisan government experts say those so-called Medicare Advantage plans are overpaid when compared to the cost of care in traditional Medicare.
But the insurance industry says the cuts will mean steep premium increases for millions of seniors in the plans. That could trigger an exodus, with seniors returning to traditional Medicare.
Cuts to the private insurance plans start right away, while reductions to providers phase in more gradually. The report says Medicare Advantage cuts account for $5.3 billion through 2011, more than 60 percent of the total estimated two-year savings of $7.8 billion.
Some of the savings are expected to come from efforts to improve quality and combat fraud.
For example, a program to reduce hospital readmissions due to preventable infections and other problems is estimated to save $8 billion over 10 years. And a new, team-based approach to providing medical care for seniors is estimated to save $5 billion over the same period, by keeping patients with chronic health problems healthier and avoiding hospitalization.
Health and Human Services Sec. Kathleen Sebelius has scheduled a teleconference Monday to discuss the report.
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