AARP Bulletin - May 2010

$390 billion in savings from Medicare over 10 years, with basic benefits protected.
Coming From?
The new health reform law wrings $390 billion in savings from
Medicare over the next decade to help pay for health care re-
forms—but spending on the program will continue to rise.
How can the new legislation reduce Medicare costs and still spend
millions more dollars on improvements like closing the gap in drug
coverage and offering free preventive care? Here’s a quick lesson in
Medicare math.
These are cuts in future increases, not cuts
in services, experts explain.
Medicare spending has grown about
8 percent annually over 20 years, according
to the Congressional Budget Office, an in-
dependent arm of Congress. The law could
slow down the annual increase in spending
to about 6 percent over the next 20 years, the
CBO has reported.
For example, of the projected $390 billion
in savings—the latest estimate from Congres-
sional Research Service—$196 billion comes
from smaller increases in payments to hos-
pitals, nursing homes, home health workers
and other medical providers. But physicians
who work in primary care will be reward-
ed with a 10 percent bonus. Hospitals that
prevent readmissions or hospital-acquired
infections will be paid more than those that
do not. The American Hospital Association
and the American Medical Association were
among the many health care organizations
that backed the legislation, along with ad-
vocacy groups.
paid to private health insurance plans, called Medicare Advantage,
that provide medical and drug coverage to about one of four people
in Medicare. Currently, Medicare pays the private plans an average of
14 percent more to care for a member than it would cost if that person
remained in traditional Medicare.
In 2012, the government will start lowering these overpayments to
Medicare Advantage plans. Insurers con-
tend they will be forced to cut benefits. But
the law prohibits plans from reducing or
eliminating essential guaranteed Medicare
benefits. It also protects plan members by
requiring that at least 85 cents of every dol-
lar insurers receive is spent on benefits.

Medicare Advantage Another piece
of the $390 billion savings, about $136 bil-
lion, comes from reductions in subsidies
E. Raymond Rock, 68, Barksdale,
Texas, meditation instructor
Insurance: Medicare Advantage.
Rock worried that Medicare Advantage
plans will be axed. He and others in
these plans may lose some extras—
like free eyeglasses and health club
memberships—but the program won’t
disappear and basic Medicare benefits
will not be cut.
Guarantees The law also requires Medi-
care to spend more wisely. For example, a
new independent Medicare advisory board
is expected to save the program $16 billion
over 10 years. Cracking down on fraud and
waste will save an estimated $7 billion. Even
bonus payments and innovations aimed at im-
proving patient care are intended to produce
a long-term payoff: People who get more ef-
fective treatment can recover more quickly
from medical setbacks, and that saves Medi-
care money, too.
Finally, the law comes with a Medicare
warranty in Section 3601: Nothing in the
law can cut current Medicare benefits,
and the Medicare savings it achieves “shall
extend the solvency of the Medicare trust
funds, reduce Medicare premiums and
other cost-sharing for beneficiaries, and
improve or expand guaranteed Medicare
benefits and protect access to Medicare
providers.” —Susan Jaffe
How Will the New Law Affect My Doctors?
Americans are already struggling with a short-
age of primary care doctors.
While some fear that insuring
more people will make it even
harder to find a doctor, groups
like the American Medical As-
sociation say the new law will
help improve the situation.
; Medicare will give extra payments to physicians
and nurses providing primary care in areas with
doctor shortages. Adjusting Medicare payments to
reflect regional differences will benefit doctors in 42
states, the AMA says. Medicaid doctors will see pay
increases. Paperwork will be simplified, to give doc-
tors more time with patients.
; New measures to attract more doctors, nurses and
physician assistants to primary care include forgiving
student loans for those who practice in areas that
need medical workers. Community health centers
will receive $11 billion starting in 2011, allowing them
to serve some 20 million new patients.
; More health professionals in Medicare will be paid
for the quality of care they provide rather than the
number of services they perform—a change that is
expected to lower costs while improving care and is
likely to be adopted by private insurers, too.