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Reforming Delivery
Big Medicare Savings Point the Way to Health Care Fix

Perhaps we’ll be able to reverse the course of our unsustainable health care system after all. A new CBO report on Medicare released Wednesday shows that Medicare continues to become less insolvent every year. In 2010, the CBO estimated in would cost the federal government $12,700 each to care for every person in the Medicare system in 2019. The new report pegs that number at $11, 300. NYT‘s The Upshot has more:

The difference between the current estimate for Medicare’s 2019 budget and the estimate for the 2019 budget four years ago is about $95 billion. That sum is greater than the government is expected to spend that year on unemployment insurance, welfare and Amtrak — combined. It’s equal to about one-fifth of the expected Pentagon budget in 2019. Widely discussed policy changes, like raising the estate tax, would generate just a tiny fraction of the budget savings relative to the recent changes in Medicare’s spending estimates.

In more concrete terms, the reduced estimates mean that the federal government’s long-term budget deficit is considerably less severe than commonly thought just a few years ago. The country still faces a projected deficit in future decades, thanks mostly to the retirement of the baby boomers and the high cost of medical care, but it is not likely to require the level of fiscal pain that many assumed several years ago.

Why is this happening? The story cites some direct cuts to Medicare’s budget enforced by the ACA but “much” of the savings come from shifts in how health care providers treat their patients. Patients are consuming fewer brand name drugs (more expensive than equally effective generic versions); they are spending less time in the hospital (the most expensive places to get care); and just generally consuming health care more responsibly. These are called “technical changes” and they account for a 12 percent downward revision in Medicare costs.

This news is encouraging indeed, and not only for the future of Medicare. The central goal for all health care reform must be to make health care cheaper. The cheaper it is, the easier it is to expand access to more Americans—and to ensure that access to health care insurance translates into real access to actual services. The Medicare savings show us what works: changing how patients consume care and how providers deliver it. Policy makers and pundits should focus on how to sustain and encourage these “technical changes.” More of this, please, and faster.

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  • Arkeygeezer

    One of the direct cuts to Medicare was a cut in funding for Medicare Advantage plans. These are Medicare Plans that meet Medicare requirements but are administered by private insurance companies. About 25% of Medicare recipients are enrolled in Medicare Advantage Programs. However, with the fall elections looming, President Obama has removed that cut and has actually increased funding for Medicare Advantage.

    Good move Mr. President! I am enrolled in a Medicare Advantage program and its saving me a lot of money.

  • jeburke

    I’d be wary of these projections. In 2010, the Administration was still on its 2009 glide path, when it grasped at every argument supporting drastic “reform.” Now, it needs to demonstrate benefit due to the ACA and watch: whatever the real reasons for changes anticipated in Medicare outlays, Obama will claim that “we’ve already saved xx billions in Medicare costs due to the Affordable Care Act.”

    Given the fog that lies over huge government programs like Medicare, it’easy to jigger a couple of assumptions that significantly change a five-year projection which is at best a good guess anyway

  • ojfl

    One thing that remains unexplained is that much of the prudence in spending only came with the Medicare reform of 2003, which exposed seniors to more of the cost of their own healthcare.

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