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Friday
Jan102014

Has ObamaCare Reduced Medicare Spending? Part 1

Writing in the Wall Street Journal earlier this week, Jason Furman, chairman of the White House Council of Economic Advisers, claimed  that the current slowdown in national health care spending “is thanks in part to the Affordable Care Act….Many factors, including the recession and one-time developments like blockbuster drugs coming off patent, have contributed to the slowdown, which started in the middle of the last decade. But the slowdown has deepened since the ACA passed, and evidence shows the law has made a meaningful contribution.” 

Furman also claims that the health care law has impacted Medicare spending. ObamaCare “is directly responsible for a substantial portion of slowdown in Medicare’s growth over the past few years…Notably, the rise in Medicare costs has slowed, with real Medicare spending per beneficiary essentially unchanged from 2010 to 2012.”  As the chart below shows, the rate of real per beneficiary growth in Medicare has almost dropped off a cliff since 2010:

 

But is that slowdown the result of ObamaCare?  Let’s take a look at the factors Furman argues are responsible. First, “Medicare now penalizes hospitals if too many patients need to be readmitted—a change that helped reduce hospital readmission rates by more than one percentage point through 2013, corresponding to 130,000 avoided readmissions.”

That policy change was part of ObamaCare, but it had no impact on the Medicare growth rate in 2010 or 2011 because it didn’t go into effect until October 1, 2012.  Readmissions dropped n 2012 by 70,000, although a study by CMS was unsure as to what caused the decline.  But let’s assume that the new policy was responsible for every bit of the 70,000 drop.  The average Medicare readmission costs about $14,500.  Thus, the new policy may have saved Medicare just over $1 billion in 2012.  Adding that $1 billion into Medicare expenditures for 2012 increases the per beneficiary growth rate from -0.7% to -0.5%.  Thus, changing Medicare’s readmission policy may have had at most a small impact on Medicare finances in 2012.

Next, Furman states that “more than 360 organizations serving five million Medicare beneficiaries have adopted the ACA’s Accountable Care Organization models, letting them share in savings created by improving the efficiency of care, so long as they also provide high-quality care.”  First, the ACO programs run by the Centers for Medicare and Medicaid Services (CMS) began in 2012.  Thus, just like the readmission policy, ACOs had no impact on Medicare’s growth rate in 2010 or 2011.

Second, Furman’s implication here is that putting Medicare beneficiaries into an Accountable Care Organization (ACO) is an automatic money saver. But the jury is still out on the effectiveness of ACOs.  “Pioneer” ACOs is one program run by CMS. Thirty-two organizations covering 860,000 Medicare beneficiaries participated in this program in 2012.  By the end of the year nine organization dropped out of the program. Eighteen reduced costs but only 13 of those saved enough to return money to Medicare.  The amount of money Medicare received was a mere $33 million, barely enough to make a nick in Medicare’s growth rate.  CMS has another ACO program that began in 2012 called the Medicare Shared Savings Program, but as of yet no data is available on whether it saved any money.

Furman’s explanation for why ObamaCare is responsible for slowing the growth in Medicare falls short.  So, what is causing the slowdown?  Part 2 on Monday.

Photo credit: iStockPhoto

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