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Health Care

Can Obamacare Save Medicare?

If the ACA can deliver on its promise of a healthier population, it would save Medicare big money. The law’s critics aren’t holding their breath.

President Obama's signature health law could help curb Medicare spending, if the newly enrolled actually use their health coverage.(YURI GRIPAS/AFP/Getty Images)

photo of Sophie Novack
January 22, 2014

Mitt Romney continually accused President Obama of "robbing Medicare to fund Obamacare" throughout the 2012 election. Now, long after the campaign, the charge lives on as one of Republicans' top talking points as they attempt to shore up support among seniors.

But the Affordable Care Act's defenders say the GOP has it backwards. If the law can deliver on its promise of a healthier population, they say, it will go a long way toward keeping the cash-strapped entitlement program solvent.

By expanding insurance to millions of people, the law hopes to reduce the rate of preventable conditions that, as patients age and enter Medicare, become very costly. And there's some evidence that broader insurance coverage will lead to better health and lower costs.

 

A December 2013 Government Accountability Office report found that continuous insurance—about six years—before Medicare enrollment is associated with better health and lower spending. Patients who were uninsured in the six years leading up to Medicare enrollment used $6,733 during their first year in the program, according to GAO. That's 35 percent more than the $4,390 spent in the first year on patients who were continually covered, the report said.

The discrepancy in Medicare spending on healthy versus sick beneficiaries offers insight into the need for improved pre-program care.

"It should be no surprise that the Medicare program for health care for the elderly and disabled spends most of his money on the sickest beneficiaries," said Dan Perry, president of the Alliance for Aging Research. Perry estimates that 15 percent of Medicare beneficiaries have multiple chronic illnesses and account for about 75 percent of the program's costs.

Insuring more of these individuals under the ACA could result in catching and controlling more of these diseases before individuals enter Medicare. If the act does succeed in dramatically lowering Medicare costs, it would ease a large fiscal problem.

Medicare currently makes up about 16 percent of the federal budget, covering around 50 million seniors at a cost of about $600 billion. Though the rate of overall health care spending has slowed in recent years, the high levels remain a driver of the national debt and deficit. The problem is poised to worsen as aging baby boomers enter Medicare en masse.

But success in decreasing health spending has thus far been elusive, as has dramatically improving public health outcomes, and Obamacare's critics are skeptical that the new law is the answer.

Expanding insurance does not guarantee healthier people, says Joe Antos, a health care and retirement policy scholar at yhe American Enterprise Institute.

"There are 'good' insurance policies and not-good insurance policies. If you have insurance with a high deductible, for example, and you are lower-income, it might be too much of a barrier to getting the services you need," he said.

"With the ACA, most of the silver plans I looked at tend to have quite high deductibles, which discourage people from getting services. With Medicaid, the access to providers is quite limited," he said.

The challenge is that increased insurance does not necessarily mean increased care, and increased care does not equate to improved health.

"Just having insurance is not enough—then [consumers] have to go to the physician," said Bill Pierce, senior director of APCO Worldwide and former HHS spokesman for the Bush administration.

Pierce says it is too early to know if and how those newly insured under the ACA will actually use their coverage, though insurers are keeping a close watch. Yet he is optimistic that having coverage could encourage people to see the doctor, improving the chance of catching and better managing disease.

"The idea of doing better at preventing and managing care goes to the fundamental nature of how we deliver care in this country," Pierce said. "A lot of the other solutions proposed that scratch the surface can be justified, but they are all things that don't go after the problem. We need to alter the heart of what is driving cost."

Pierce describes the ACA as an access bill, not a cost-control one. However, if the law manages over time to make coverage, and care, more ubiquitous, we could begin to see payoffs down the line, in improved health and decreased spending.

"It's an investment, if you will," he says. "The whole idea of insurance is an investment."

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