Politics

The President’s Budget Saves Medicare $600 Billion While Reducing Out-of-Pocket Costs

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Last year, numerous politicians and outlets repeated the false and misleading claim that the President’s FY 2020 budget cut Medicare benefits by $845 billion. As we showed, along with other experts and factcheckers, the budget only reduced Medicare costs by $575 billion – and the vast majority of the savings would have had little effect on beneficiaries.

With the President’s FY 2021 Budget proposal just released, some are making similar claims of $756 billion in cuts this year. In reality, Medicare savings in the budget total about $600 billionusing the budget’s estimates. Rather than reduce Medicare benefits, we estimate these proposals would lower premiums, out-of-pocket medical costs, and state and local health care spending by a combined $325 billion.

Over $300 billion of Medicare savings in the President’s budget come from reducing excessive post-acute care payments, equalizing payments for similar health services offered at different health settings, and reducing reimbursements for bad debts. These policies all have broad support in the expert community and all appeared in some form in President Obama’s budgets. They’ve also been proposed by leading Democrats on the campaign trail.

The $756 billion figure that has been cited includes these and other Medicare reforms, but also counts $390 billion of savings from moving two parts of Medicare – Disproportionate Share Hospital (DSH) payments and Graduate Medical Education (GME) payments – out of Medicare and into other parts of the budget even though $250 billion of these funds are instead spent elsewhere in the budget.

Reclassifying spending is not the same as reducing it. Actual specified reductions to Medicare total only $505 billion over a decade – not $756 billion. Adding in the savings that might be generated from drug pricing reforms would bring the total savings to roughly $600 billion. (On drug pricing, the budget includes a $135 billion placeholder, assuming a bipartisan agreement will emerge similar to the Senate Finance Committee’s proposal. Most but not all of those savings are likely to come from Medicare.)

Policy Budget Impact
  Reduce and reform post-acute care payments* $105 billion
  Equalize site-of-service payments* $175 billion
  Reduce payments for bad debts* $35 billion
  Medicare impact of establishing a GME fund outside of Medicare*’ $215 billion
  Medicare impact of establishing uncompensated care fund outside of Medicare $175 billion
  Medicare savings from medical malpractice reform and sequester extension $40 billion
  Other Medicare savings and interactions (net) $10 billion
Gross Reduction in Medicare Spending (not equal to total savings) $755 billion
  Non-Medicare impact of shifting GME funds outside of Medicare*’ -$165 billion
  Non-Medicare impact of shifting DSH funds outside of Medicare -$85 billion
Net Specified Reduction in Medicare Spending $505 billion
  Likely Medicare savings from drug pricing reforms# ~$100 billion
Net Medicare Savings in the President’s Budget ~$600 billion
     
Memo: Net Direct Medicare Savings (excluding sequester & med liability reform) ~$560 billion
Memo: Net Budgetary Savings from Policies with Significant Medicare Impact ~$650 billion

* A version of this policy was proposed by President Obama.
‘ These policies move money out of Medicare and into a new fund. The reductions in Medicare spending are thus much larger than the net budgetary savings.
#The Administration includes a placeholder of $135 billion from drug pricing reform. We assume – based on an initial score of the original Finance Committee bill — that roughly $100 billion of this would come from Medicare, though the exact amount will depend on the details.

For context, Medicare spending is projected to total $10.4 trillion over the next ten years. $600 billion would represent a 6 percent reduction. It would reduce average cost growth from roughly 7 percent per year to roughly 6 percent.

These policies would not represent reductions in benefits, but instead reductions in cost for roughly the same level of benefits.1 Indeed, the policies would actually reduce costs for individuals by lowering premiums and out-of-pocket costs.

Assuming the policies have the same proportional effect as in our April analysis of bipartisan health proposals, we estimate the President’s Medicare proposals (including non-Medicare effects of drug pricing and medical liability reform) will generate additional cost reductions on top of about $325 billion. In other words, total premiums, out of pocket spending, and spending by state governments will fall by roughly $325 billion over a decade. Total national health expenditures would fall by nearly $1 trillion.

  Federal Budgetary Savings Additional Savings to
Individuals and States
Reduce and reform post-acute care payments* $105 billion $5 billion
Equalize site-of-service payments* $175 billion $115 billion
Reform GME payments $50 billion
Reform uncompensated care payments $90 billion
Other Medicare savings and interactions (net) $55 billion $5 billion
Reform medical malpractice laws $40 billion $150 billion
Enact comprehensive drug pricing reform $135 billion $50 billion
Total Savings from Medicare-related Policy Proposals^ $650 billion ~$325 billion

* A version of this policy was proposed by President Obama.
`These policies may have effects on non-federal health spending, but it is difficult to determine the direction or magnitude of those effects.
^This includes non-Medicare savings related to medical malpractice liability reform and drug pricing.

While of course all policies involve trade-offs, the President’s Medicare proposals would improve the value of each Medicare dollar, reduce the unsustainable growth of the program, and lower costs for seniors and other households. These savings would total roughly $600 billion, not $756 billion, and they represent reductions in costs not cuts to benefits.


1 On the margins, reduced payments to providers could impact quality and access in some select cases. But there is little evidence of any significant effect, particular for policies like those proposed which largely focus on reducing excessive payments and spending more efficiently.

Reprinted with permission from - Committee for a Responsible Federal Budget

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Patriot Will

I’m impressed with President Trump’s ability to work with administrators who have a strong ability to modify specs of Medicare which both improve efficiency and reduce waste and fraud. It’s not that President is a genius, but he has a gift for listening and working with knowledgeable people. Obama was so stubborn and conceited that he always thought he knew better than anyone else. In fact, Obama is easily the most incompetent president in the last 100 years.

Mimi

Reduce costs without reducing services. Anything that reduces costs for me is a good thing. We better pray that President Trump gets re-elected AND that we keep the senate and take back the house. Otherwise the democrats will vote against this. They don’t care at all about making life better for us, they only care about doing everything they can to go against the President.

mary Youngman

When an elderly person 90 years old returns to the same hospital with in a weeks time and every test is repeated over and over ,this is a waste of Medicare money , The middle man in the drug company should be eliminated . Reduce the salaries of these high paid middle man.

Stephen Russell

Cut Medicare DC bureaucracy alone, automate & save more $$$.
Have HC providers compete for services & prices, add Organic RX, wellness, to Mix.
Nationwide

John Karkalis

Key points for Medicare beneficiaries, it seems, would be 1. Curtailing out of pocket expenses. 2. No decrease in coverage.
As an inherently suspicious type, I do look somewhat askance at a scheme that promises to save money by moving expenditures “A” over to column “B” and expenditures “C” to column “F”. Sounds like the old shell game to me. If the numbers as listed add up, then fine.
Imagine what Bernies utopian plan would look like on paper. Yuck!

Paul DAscenz

President Trump, is for the people!
When are the Democrats going to admit that he’s done more for this Country, than the last 4 Presidents combined. Bravo! Mr. President You Rock!
Trump 2020! Trump Jr. 2024!

Diana Collins

Awesome Mr President and staffers. Thank you.

rvgrandma

I think there needs to be a better look at hospice. When my husband went on hospice it was because of ‘failure to thrive’. All hospice provided was weekly checkups on him and medications. Yet, Medicare paid hospice almost $6,000 plus hospice charged for each visit and medications. If he needed a lot of care I could see maybe the flat fee, but he only needed minimal care from them. His weight stabilized and he was released from hospice.

I believe in hospice and it is essential, if it needed for those that would otherwise not get the end of life comfort care that is needed. But, there should probably be a graduated care scale.

Brenda Blunt

Just because you move money from one pot to another doesn’t mean all is good. Negotiate all prices for everything and pay reasonable prices. Those who fraud, should reimburse all with interest and go to prison!!!!

Morbious

As long as the country is as divided as it is now, there is little hope of medicare, social security or welfare reform. Each half of the country lives in a parallel universe, with its own realities. As in 1861, one side must win and the other lose. Thanks Mr. Weber for doing more than your part in this war.

Betty Davis

Physicians have been cut many times over the years. That is not the best place to cut. They spend a lot for their educations, staff and overhead. I would prefer to see cuts made to the layers of companies making a profit by overcharging. We need to provide more “health care” to those who need care but cannot afford insurance. Insurance does not guarantee care.

Chuck

Great News in this article with the facts and numbers to back it up. Thank you, President Trump!! The Democratic Party is now an unAmerican entity and deserves to banned from our political process. They are 180 degrees from our Constitution and need to be declared a terrorist organization. They have bred violence to our process for the past 40 years, we have had enough of their bull. They need to be excised from our country for good. They are infantile, malcontents that are too lazy to help themselves. All of their actions deserve nothing but our condemnation and the swift application of justice to rid ourselves of these ill-mannered bastards. The Democrats are out of time, either they come back to our Constitution or get the hell out, that goes for George Soros and his out of whack family, send them back to Hungary, we do NOT need you.… Read more »

Diana

One thing make congress a part time job no retirement, no healthcare, no vacations, no berks at all, that would help Medicare, for e them congress to repay the money that have stole over the years retroactive 20 years and the president they need a cut in their retirement a big one at least half, no more bodyguards no more vacations, they have to use their own money NOT Taxpayers, and the pharmaceutical companies need looked at they overcharge for non- generic not all people can take the useless meds. They are putting out their I back 1984 paid 10-20 Dollars for pain meds now 350. Dollars a mo. And the meds are not as good as they use to be thanks to the government getting into our medication to kill us off sooner, I am for saving where possible but not at the cost of the elderly or those… Read more »

Joseph canna

Would like it better if it included Medicare negotiated drug prices

James Nash

This is a great article and explains the changes proposed for medicare. It is nothing like the fear Democrats are pushing on this subject. They hope seniors won’t find out this truth and listen to the normal Democratic diatribe that Bernie and others are pushing. Thanks AMAC for getting to the bottom for us.

Yvonne

Confusion abounds on these proposed changes. I have yet to see any reduction in medical billings to me. And, prescription costs are still ridiculous! Getting frustrated.

Kay Norfleet

I believe I heard that Trump’s proposals in Medicare(and Social Security) would not affect elderly. Is this true?I am elderly.

Deacon John Berstecher

Also you never hear that “cuts” are usually cuts in proposed spending, not actual cuts in current speeding.

Kay Norfleet

I believe I heard that Trump’s reductions in Social Security and Medicare would not affect elderly. Is this true? I am elderly.

McB

Ok. I am pro Trump. I know there is waste as in any government program. But reduced costs for the same care? Please show me the math that services aren’t curtailed and restricted like Medicaid.