NCPA - National Center for Policy Analysis

Medicare Cut to Fund Obamacare

March 12, 2015

One of the reasons people rebelled against Obamacare was that it financed the growth of government-run health care through drastic cuts to Medicare. According to the Congressional Budget Office (CBO), Medicare spending will see a $455 billion cut over the next decade, which would finance almost half of Obamacare spending, says National Center for Policy Analysis senior fellow John. R. Graham.

Medicare planners and their academic supporters endorse various bureaucratic methods of paying for "value" - as perceived by the government. Indeed, Sylvia Burwell, U.S. Secretary of Health & Human Services, recently expressed the aspirational goal of tying 85 percent of Medicare's payments to value by 2016, and 90 percent by 2018.

One loudly trumpeted tool to create value in Medicare is the Accountable Care Organization (ACO). Unfortunately, ACOs are underwhelming and soon likely to fall off the radar screen.

The ACO program never fooled the CBO, estimating that in 2010 they would only save $4.9 billion through 2019 - just 11 percent of the total cuts to Medicare incorporated within Obamacare. ACOs are complicated contracts whereby the government and provider organizations agree to share the gains the provider organization wrings out of Medicare costs.

Although the Medicare ACO has only been around for two years, their supporters are already starting to panic that ACOs are "at risk."

Benchmarks (from which savings are determined) are based on three-year trends in national spending. This means that the least efficient and most expensive provider organizations have the most opportunity to profit from an ACO contract. However, once the first three-year period is finished, each ACO's benchmark will ratchet up, so that it ends up "chasing its own tail."

The low-hanging fruit will be gone in a year or two. No wonder over two-thirds of executives of ACOs have indicated they will not sign up for the next three-year round of ACOs.

Source: John R. Graham, "Let Medicare Patients Decide Which Accountable Care Organizations to Join," National Center for Policy Analysis, March 11, 2015. 


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