Feds project reform will save Medicare billions, but some question the math

Key cost-containment provisions in the Patient Protection and Affordable Care Act (PPACA) will generate $7.7 billion in Medicare savings through 2011 and $417.5 billion by 2019, according to a new report from the Centers for Medicare and Medicaid Services (CMS). "Altogether, the report shows that the reforms in the new law will save Medicare over $575 billion in the first several years of the Affordable Care Act," said U.S. Department of Health and Human Services Secretary Kathleen Sebelius at an Aug. 2 press conference.

Those savings will extend the solvency of the Medicare Hospital Insurance Trust Fund by 12 years from 2017 to 2029, the report projected. But reporters at the press conference immediately took up the call of CMS Chief Actuary Rick Foster, who back in April had warned the federal government against double-dipping (i.e., using accounting conventions to apply the same savings to pay for PPACA coverage expansions and to extend the trust fund). "In reality, the $575 billion can't be used to extend the trust fund for 12 years and simultaneously used to finance coverage for 30 million people," charged a reporter from The American Spectator.

Sebelius and Jonathan Blum, director of the Center for Medicare Management at CMS, disagreed. "It has been a consistent budget convention that when you have fewer outlays paid to the Medicare trust fund, it extends the life of the trust fund because you're paying less in benefits, but it also produces surplus to the overall federal budget ... that can be spent for other purposes," said Blum.

The CMS actuary "differs in his strategic opinion from every accounting methodology that is used for every other program in the federal budget," pointed out Sebelius. "He has a different interpretation that is not agreed upon by the Congressional Budget Office or OMB [Office of Management and Budget] or traditionally in Congress." In fact, the same scoring convention "was used back in 1997 when the Republican Congress passed the Balanced Budget Act," added Blum.

The largest chunk of the 10-year estimated savings--$205 billion--will come from "improvements to productivity and market basket adjustments in most provider settings," followed by $145 billion for ending "overpayments to Medicare Advantage plans," according to the CMS report. Reporters again referred to Foster, who had described the $205 billion in savings as potentially unrealistic and unsustainable.

"There seems to be a growing bipartisan consensus within the halls of Congress that dealing with solvency issues and dealing with the growing deficit on healthcare is a critical matter. So we are more optimistic [than the CMS actuary] that this is not only the right direction to have increased efficiency, increased productivity, increased quality but that the will of Congress to in fact move in this direction is more substantial than it has ever been," responded Sebelius. "It gives us a higher degree of confidence in the numbers as they remain."

To learn more:
-read this report from The Hill
- read this Health Affairs blog post
- read this Kaiser Health News editorial
- take a look at this post at National Review Online
- read this Associated Press article in the Washington Post
- access the CMS report here