New Study: $3.5 Trillion Could Be Saved over 25 Years by Restructuring Medicare and Medicaid Fee-for-Service Model

  • New report offers practical solutions to reduce growing US budget deficit through Medicare and Medicaid reform
  • Recommends expansion of coordinated care programs, integration of Medicare and Medicaid benefits

WASHINGTON--(BUSINESS WIRE)-- Federal and state governments could save taxpayers about $3.5 trillion over the next 25 years by expanding the use of coordinated care programs in Medicare and Medicaid, according to new analysis by UnitedHealth Group’s (NYSE:UNH) Center for Health Reform & Modernization. The report has been provided to the bipartisan National Commission on Fiscal Responsibility and Reform, known as the Deficit Commission.

The report, “U.S. Deficit Reduction: The Medicare and Medicaid Modernization Opportunity,” builds on the emerging consensus that the current fee-for-service indemnity payment system, which comprises more than three-quarters of Medicare and Medicaid spending, is one of the primary drivers of fragmented care and rising health care costs. The report sets out practical steps, based on UnitedHealth Group’s experience as the largest single provider of Medicare Advantage and Medicaid programs, to better coordinate care and provide holistic and proactive support for seniors and Medicaid beneficiaries.

The Deficit Commission, established in February 2010, is tasked with building consensus and recommending to Congress a new fiscal path for the U.S. Its recommendations are due in December. According to the Congressional Budget Office, meaningful deficit reduction will be difficult to achieve without modernization of the Medicare and Medicaid programs, as they are one of the main medium-term drivers of the rising U.S. budget deficit.

“Expanding the use of coordinated care and integrating benefits and funding streams is a win-win for Medicare and Medicaid beneficiaries, and for federal and state budgets,” said Simon Stevens, executive vice president, UnitedHealth Group, and chairman of the UnitedHealth Center for Health Reform & Modernization. “These are practical options that can now be tested at scale under current law.”

Fee-for-service payments occur when health care providers are reimbursed for each service, such as a physician’s office visit, test, procedure or other health care service, regardless of health outcomes. Care is often fragmented with often minimal communication and coordination among different health care professionals. The goal of coordinated care is to make health systems more proactive and responsive to individual patients’ health care needs.

The UnitedHealth Group report analyzes three broad approaches:

1. Provide coordinated care for Medicaid-eligible Americans to improve access to care and health outcomes. Over 25 years, savings are estimated at $580 billion, of which $350 billion are federal savings. During the initial 10 years - given transitional costs and phasing - potential savings are estimated at $103 billion, of which $63 billion are federal savings. Under this option, states would enroll most of their fee-for-service Medicaid population (who aren’t also receiving Medicare) in coordinated care programs, including people with long-term care needs.

2. Expand use of coordinated care for dual-eligible Medicare and Medicaid beneficiaries to support people with chronic conditions requiring intensive support and high-cost services. Over 25 years, savings are estimated at $1.62 trillion, including $1.27 trillion for the federal government. In the first 10 years, savings are estimated to be $250 billion, of which $206 billion are federal savings. Examples from the report’s recommendations include wider use of home- and community-based care programs to allow individuals to live longer in their own homes, better coordination between Medicare and Medicaid, and full integration of Medicare and Medicaid benefits. If current approaches do not change, spending on dual-eligible individuals – people who are eligible for both Medicare and Medicaid programs – is projected to reach about $5 trillion over the next decade.

3. Provide seniors in traditional Medicare with value-added, comprehensive care management services through the type of programs and approaches used by America’s largest and most innovative ‘self-insured’ employers. Over 25 years these savings – all accruing to the federal government – could be worth $1.9 trillion, of which $317 billion are estimated to arise in the first 10 years. Examples include adding high-quality provider networks, care coordination, and disease management and wellness programs, as well as consumer incentives, treatment decision support and value-based benefit designs. (Approximately one-third of the savings from this option are included in Option Two given the overlap with ‘dual eligibles.’ The report also offers Options Four and Five, which are more limited alternatives to Option Three.)

The report’s Medicaid estimates are drawn from the track records of some of the most innovative states, as well as UnitedHealth Group’s own experience as America’s largest Medicaid health plan. The Medicare section draws on UnitedHealth Group’s data, experience and insights from serving one in five Medicare beneficiaries nationwide.

UnitedHealth Center for Health Reform & Modernization

The Center serves as the focal point for UnitedHealth Group’s work on health care modernization and national health reform. The Center assesses and develops innovative policies and practical solutions for the health care challenges facing the nation. For more information about the Center and to view the full report, go to:

About UnitedHealth Group

UnitedHealth Group ( is a diversified health and well-being company dedicated to helping people live healthier lives and making health care work better. With headquarters in Minnetonka, Minn., UnitedHealth Group offers a broad spectrum of health benefit programs through UnitedHealthcare, Ovations and AmeriChoice, and health services through Ingenix, OptumHealth and Prescription Solutions. Through its family of businesses, UnitedHealth Group serves more than 75 million individuals worldwide.


UnitedHealth Group
Tyler Mason, 714-299-5730
[email protected]

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