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Affordable Care Act Affirmation: Medicare Trustees Note Cost Savings
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Affordable Care Act Affirmation: Medicare Trustees Note Cost Savings

Karen Davenport highlights why comprehensive health care reform strengthens Medicare and how it will meet Medicare’s future challenges.

Speaker of the House Nancy Pelosi, with Health and Human Services Secretary Kathleen Sebelius, speaking about the Affordable Care Act and Medicare, during a news conference on Capitol Hill. (AP/Manuel Balce Ceneta)
Speaker of the House Nancy Pelosi, with Health and Human Services Secretary Kathleen Sebelius, speaking about the Affordable Care Act and Medicare, during a news conference on Capitol Hill. (AP/Manuel Balce Ceneta)

Today’s annual assessment of the financial health of the Medicare program reinforces the historic nature and great promise of the Affordable Care Act. This report, which examines the short- and long-range stability of the Hospital Insurance (Part A) and Supplemental Medical Insurance (Parts B and D) Trust Funds, attributes significant savings in future Medicare spending to changes made by the new health law. The report also highlights how important it will be to the future of these programs to aggressively implement new authority within the new law.

A great leap

According to the Medicare trustees, the Part A trust fund will remain solvent through 2019—a gain of 12 years compared to last year’s projected depletion date. The trustees attribute this significant improvement in the trust fund’s health to the changes in Medicare payments to providers and insurers within the Affordable Care Act. These changes assure that Medicare is not overpaying but rather promoting efficiency in the delivery of services to its beneficiaries. In particular, the changes assure that private plans, which have generally been substantially overpaid, will be paid on a level playing field with traditional Medicare, and can receive bonus payments for delivering high-quality care.

A challenge to the health care system

The good news in this year’s report should be celebrated. The Affordable Care Act helped to stabilize the Medicare program, and will enable people with Medicare coverage and taxpayers at large to reap the rewards of controlling health care costs.

Alongside these achievements, the trustees report issues a stiff challenge to the health care system. The trustees note that for Medicare to build on this strong start and establish long-run financial stability, the nation’s health care providers will need to generate and sustain productivity improvements in how they deliver health care services—reducing their costs-per-service and keeping growth in Medicare payments at a sustainable rate. Fortunately, the Affordable Care Act responds to this challenge by reforming our current fee-for-service payment system. Today, most providers are paid in a manner that rewards volume and complexity of services rendered rather than the suitability and quality of these services. That’s why health care providers have little incentive to improve productivity.

The Affordable Care Act includes new authority that enables Medicare to develop and broadly implement new payment systems and financial incentives that reward providers who deliver efficient, high-quality care at lower costs. Ideally, Medicare, private insurers, and Medicaid (the joint federal-state health care program for low-income and disabled Americans) can work together to each implement payment approaches that reinforce this drive toward greater productivity, greater efficiency, and higher-quality care.

A recent analysis underscores how powerful successful implementation of these delivery systems and payment reforms can be. Health care economists David Cutler, Karen Davis, and Kristof Stremikis estimate that effective system modernizations will save an additional $127 billion in Medicare spending over the first ten years of implementation of the Affordable Care Act. More importantly, they estimate the comprehensive health reform will reduce annual growth in Medicare spending to 4.9 percent over the 10-year, 2010-2019 period.

The true challenge facing policymakers and health care providers will be to use the new tools in the health reform law to make meaningful and long-lasting changes in the health care system. Delivering on this promise is now up to the Obama administration working with health care providers nationwide.

Karen Davenport is the Director of Health Policy at the Center for American Progress.

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