Health-Care Reform Returns Surprising $1.5 Billion Medicare Savings

The government program infamous for its waste provided some unexpected news: $1.5 billion in savings.

Nick Ut / AP Photo

Medicare may be the poster child for a bloated government program, prone to waste by federal agencies and constant abuse by medical-service providers. But the White House is finally getting to crow about some good news: the program actually saved money.

Over the past year and a half, Medicare has saved government health-care recipients an average of $569, the administration announced Tuesday, which collectively totals about $1.5 billion in savings on prescription-drug costs. A surprising number, about 24 million people covered by Medicare, also took advantage of a free annual checkup that the law provided.The savings resulted from the closing of the so-called doughnut hole, a component of Medicare’s prescription-drug program that covered most of the cost of medication up to $2,800, and then again for all drugs over $4,550. Everything between the two numbers would have to be paid by the person who was covered, leading to high costs.

Under President Obama’s Affordable Care Act, better known as his health-care-reform package, which has been vocally opposed by Republicans, drug makers were required to offer all drugs in the doughnut hole—any that fell within the $2,800-to-$4,550 range—to be sold at a 50 percent discount, which has led to the savings.

“Thanks to the Affordable Care Act, millions of Americans are receiving free preventive services and getting cheaper prescription drugs,” Marilyn Tavenner, the interim administrator of the Center for Medicare and Medicaid Services, said in a statement Tuesday.

While the savings are real, some of Obama’s critics say Medicare itself hasn’t been reformed, and systemic abuse by providers who bill the government for services never provided has not been addressed.

“The savings comes from requiring drug manufacturers to give a substantial discount,” says Joseph Antos, a health-care economist at the libertarian think tank the American Enterprise Institute. “This discount is going to encourage people to stay on the name-brand drug instead of generics, which costs money. Eventually, the price of some drugs somewhere is going to go up somewhere in reaction to this.”

When he took office, Obama vowed to reduce billions in wasteful health-care spending. Every major Republican candidate this year has agreed that waste and fraud in the nation’s top health-care-providing program need to be reformed. Even the former head of the federal agency that oversees Medicare recently lamented the bulkiness of the program.

While $1.5 billion is real money, it pales compared with the size of waste entirely within Medicare, according to program officials. Former program manager Donald Berwick, who stepped down after he couldn’t get confirmed by Congress, said waste is pervasive at the agency, and in large numbers.

Over the last 17 months, between 20 and 30 percent of all government spending on health care has been a waste, Berwick said in an exit interview with The New York Times. Performing an extensive audit and cutting the parts of the program that have no value, he said, could save between $150 billion and $250 billion each year.