How Will Medicare Costs Be Cut?

Q.
The law will reduce payments to Medicare by $500 billion over the next 10 years, and the cost will be paid for by reducing “waste and fraud.” Does the law say how this will be done? — Bob Frishman
A.
Although “waste” is a word open to interpretation, there are several ways that the new health law will trim the Medicare program over the next 10 years. One of the biggest — and most widely publicized — is a reduction in payments to the Medicare Advantage plans that about a quarter of Medicare beneficiaries belong to. The Congressional Budget Office estimates that bringing the private plan payments into line with those of traditional Medicare will mean a savings of $136 billion over 10 years. Consumer advocates and policy experts agree that the cuts will lead to changes: some plans will likely shut down entirely, while others may no longer offer some of the extras, like gym memberships or vision and dental coverage, that they currently make available.
Roughly $200 billion will be cut by reducing payment increases to hospitals, nursing homes, home health agencies and other providers, said David Certner, legislative policy director for AARP. Payment increases will be tied to productivity and quality improvements. “We think these cuts won’t harm the program,” he said.
There are several initiatives that are intended to fight Medicare fraud and abuse, but they are not generally big-ticket items. They include data-sharing arrangements to identify fraudulent providers more effectively, increased background checks and a national provider prescreening program. The law also requires providers and suppliers to establish compliance programs and increases the penalties for filing false claims.
Although there are cuts to the program, there are investments, too, said Mr. Certner. These include closing the Medicare prescription drug doughnut hole, adding free preventive care for Medicare beneficiaries and improving pay for primary care doctors.
The Medicare changes will also strengthen the program by extending the life of the Medicare trust fund by at least 10 years, said Mr. Certner. “The status of the trust fund is not something that most people think about personally,” he said. “But that’s pretty significant.”