PPACA & Medicare

General Resources

Research and Analysis, Medicare Cost Savings

  • Congressional Budget Office, “H.R. 4872, Reconciliation Act of 2010 (Final Health Care Legislation).” March 20, 2010. This cost analysis explicitly acknowledges that ACA would “put into effect a number of policies that might be difficult to sustain over a long period of time” (p. 14). Items specifically cited included a) payment reductions to physicians and other providers; and b) savings required from the Independent Payment Advisory Board (IPAB).
  • Congressional Research Service. Medicare Physician Payment Updates and the Sustainable Growth Rate (SGR) System, August 6, 2010. Documents repeated instances in which Congress has overridden statutorily mandated reductions in physician payments. This experience has led some to question whether Congress will likewise find a way to evade the statutory mandated Medicare cost savings included in the Affordable Care Act.
  • Richard Foster, Estimated Financial Effects of the Patient Protection and Affordable Care Act, as Amended. Centers for Medicare and Medicaid Services, Office of the Actuary, April 22, 2010. This report suggests projected Medicare savings under the ACA “may be unrealistic” in part because they would require very large reductions in provider payments vis-a-vis private health insurance. The following chart shows how payments for inpatient hospital care would be cut in future decades:

CMSMedicare

This slide shows the impact of ACA cuts on physician care. Medicaid rules preclude hospital payments from exceeding Medicare rates; therefore, once Medicare payments drop to Medicaid levels, payment rates for both programs must fall in lock-step. For physician payments, however, there is nothing to stop Medicare payment rates from eventually falling below the rates paid by Medicaid:

PhysicianCuts

  • Richard FosterThe Financial Status of Medicare. Presentation for the American Enterprise Institute, April 24, 2012.
  • Joseph Newhouse, Professor of Health Policy and Management at Harvard: “…it is equally hard to imagine cutting only Medicare spending while spending by the commercially insured under age sixty-five continues to grow at historic rates, which would lead to a marked divergence between what providers are paid for treating the commercially insured relative to what they are paid for Medicare beneficiaries. This gap could jeopardize Medicare beneficiaries’ access to mainstream medical care.” Newhouse, Joseph P. (July 22, 2010) “Assessing Health Reform’s Impact on Four Key Groups of Americans,” Health Affairs 29:9, pp. 1-11.
  • Peter Orszag, former CBO and OMB Director: “[One] approach is to simply reduce payments to providers—hospitals, doctors, and pharmaceutical companies. This blunt strategy can work, often quite well, in the short run. It is inherently limited over the medium and long term, however, unless accompanied by other measures to reduce the underlying quantity of services provided. If only Medicare and Medicaid payments were reduced, for example, providers would shift the costs to other patients and also accept fewer Medicare and Medicaid patients.” Orzag, Peter R. (July/August 2011) “How Health Care Can Save or Sink America,” Foreign Affairs 90:4, pp. 42-56.

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