Health Law Saves $120 Billion in Early Years, Medicare Says

Medicare, the U.S. health insurance program for the elderly and disabled, said the health-care law will save the program $120 billion in the next five years through lower payments to hospitals and insurers.

About $50 billion of the savings come from reduced payments to insurers including Humana Inc. (HUM), WellPoint Inc. (WLP) and UnitedHealth Group Inc. (UNH) The companies lead the market in enrollees in Medicare Advantage, the privately run, government-subsidized portion of the U.S. health program.

Other major savings in the law come from cutting payments to hospitals and reduced payments to providers of medical equipment such as oxygen and wheelchairs. The lower costs prove the health-care overhaul that Democrats passed last year is working, Medicare Deputy Administrator Jonathan Blum said.

“There’s bankable savings,” he said by phone. “The program is becoming more efficient. We are promoting payment reforms that are elevating quality, elevating performance and lowering costs.”

Reduced spending in Medicare was a major priority of the health-care overhaul U.S. President Barack Obama signed into law in March 2010. The effort is projected by the Congressional Budget Office to reduce U.S. deficits by $143 billion, partly through almost $500 billion in cuts and savings from the Medicare program in a decade.

‘Very Much Consistent’

Blum said the savings were in line with expectations of the Obama administration, based on previous projections from Medicare and the Congressional Budget Office, which analyzes legislation for cost and savings. “We’re very much consistent with where we thought we would be,” he said.

Republicans in Congress have criticized the health law, saying it will save far less than projected. Led by House Budget Committee Chairman Paul Ryan of Wisconsin, they have proposed privatizing Medicare by distributing vouchers to help individuals buy coverage from insurers.

Blum said that in addition to saving the government money, it was helping Medicare recipients. He credited stronger negotiating powers granted to Medicare in the law, letting the program reject bids by insurers who want to participate in Medicare Advantage.

Even with cuts to payments to private insurers, enrollment in the program by U.S. seniors has climbed 6 percent this year from 2010 as premiums paid to insurers declined 6 percent, according to Medicare.

Medicare Participation

While growing, the Medicare Advantage plan still makes up a fraction of the overall Medicare population. Of the 47 million people in Medicare, 27 percent were in the private sector version in 2010, according to the Menlo Park, California-based Kaiser Family Foundation.

Robert Zirkelbach, a spokesman for the insurers lobbying group America’s Health Insurance Plans, said in an e-mail that while the private Medicare program is strong now, more cuts that go into effect next year would “have a devastating impact” on people in the program.

A bidding program to have makers of wheelchairs, oxygen tanks and other durable medical equipment that Medicare pays for compete for business will save $2.9 billion through 2015, Medicare projects.

Invacare Corp. (IVC), based in Elyria, Ohio, is a leading manufacturer of the medical products. The industry’s Washington lobbying organization, the American Association for Homecare, has fought in Congress to stop the bidding program.

Program Overview

“It decreases quality and increases costs since beneficiaries will spend more time in institutions instead of in their own homes,” Michael Reinemer, a spokesman for the lobbying group, said of the bidding program.

Medicare will release a full overview its finances tomorrow as part of the annual trustees report that projects long-term financing, savings and deficits in Medicare. The trustees include Obama administration officials and Chief Medicare Actuary Richard Foster.

Foster has been a frequent critic of the health law and its projected savings, saying he doesn’t expect Congress to allow some cuts in the law to go through.

The last trustees report projected that the health overhaul law would extend the program’s life by 12 years, to 2029 from 2017. Foster, in an addendum to the report, said the savings and cuts in the health law would eventually make it harder for seniors to find a doctor or hospital that would take Medicare payments.

Blum said the savings in today’s report were based on the actuary’s office projections. He wouldn’t comment on tomorrow’s more comprehensive analysis.

To contact the reporter on this story: Drew Armstrong in Washington at darmstrong17@bloomberg.net;

To contact the editor responsible for this story: Adriel Bettelheim at abettelheim@bloomberg.net.

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