Budget Bullets: Health Care

How to Trim Hundreds of Billions from Medicare and Medicaid Without Reducing Services

We can save $112 billion over 10 years by reforming the Medicare prescription drug benefit.

SOURCE: flickr/jackhynes

By Kristina Costa | June 29, 2011

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The ballooning cost of health care is a major driving force behind the budget deficit. While the Affordable Care Act will reduce the deficit by $230 billion over 10 years, we can save hundreds of billions more by reforming the Medicare prescription drug benefit, and by reducing Medicare and Medicaid payment errors.

We can save $112 billion over 10 years by reforming the Medicare prescription drug benefit

• Before 2006, drug companies paid rebates to the government for drugs provided to low-income seniors through Medicaid

• Drug companies won big with the creation of Part D, which dramatically lowered rebates for drugs provided to low-income seniors

• Restoring the old rebate formula for low-income seniors would save the government $38 billion by 2016 and $112 billion by 2021, according to the Congressional Budget Office

We can save almost $70 billion over 10 years by reducing federal payments for graduate medical education*

• Federal payments to teaching hospitals exceed hospitals’ actual teaching costs by about 3.5 percent, according to an analysis by the Medicare Payment Advisory Commission

• Total mandatory federal spending for graduate medical education was about $10 billion in 2010, according to the CBO

• Bringing payments in line with the actual costs of teaching services will save $25 billion by 2016 and $69.4 billion by 2021

Preventing payment errors by Medicare and Medicaid can save tens of billions each year

• Medicare and Medicaid waste around $70 billion every year on improper payments to insurance companies and doctors.

• The Obama administration is working to reduce the $34.3 billion in traditional Medicare “fee-for-service” errors by half by 2012.

• That’s a good start, and legislation introduced recently by Sens. Tom Carper and Tom Coburn will further curb Medicare and Medicaid fraud through better data-sharing technology and strong incentives for insurance companies to avoid payment errors.

* Clarification, June 30, 2011: We regret that this piece included reductions in federal payments for medical education. These programs are critical to ensuring access to the health system. While there are many worthy programs that we as a country may have to consider reducing in the future if we want to get to zero deficits, and that may well be considered in any plan that includes significant new revenues and clear changes in security spending, it is not CAP policy that medical education reductions be considered as part of the current budget negotiations.

Kristina Costa is a Special Assistant at the Center for American Progress.

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