3 Ways to Cut Medicare Spending

Medicare spending is a big long-term concern. Here are three ways we could reduce it.

Jul 20, 2014 at 7:31AM

As reported in the New York Times, Medicare spending seems to be coming under some control. Medicare spending is expected to make up 4.6% of GDP in 25 years, as opposed to the 4.9% the Congressional Budget Office (CBO) had predicted last year.

And the Kaiser Family Foundation notes that Medicare appears to be spending about $1,000 less per person this year than had been previously expected when this year's numbers were forecast in 2010.

Time to break out the champagne?

Not so fast.

The CBO notes that its staff isn't sure about why the spending slowdown has occurred or how long it'll stay.

3 ways to reduce Medicare spending
However, there are some easy ways to potentially reduce Medicare spending over the long haul -- things that we should be watching for over the long term to hopefully help bend that cost curve, control spending, and improve care outcomes.

The first is investments in Accountable Care Organizations (ACOs for short). ACOs take many different shapes and forms, but the Pioneer ACO Model, which Medicare is 'pioneering' (pun obviously intended) gives providers bonuses based on the money they save Medicare each year. A hospital might earn a bonus by systematically helping patients manage chronic diseases, potentially helping prevent a costly emergency room visit. Participating providers have to achieve certain quality targets as well to ensure that the care given doesn't sacrifice effectiveness for cost.

The second is negotiating drug prices. That's right, Medicare can't do that. Europe does. Pharmacy Benefits Managers like Express Scripts (NASDAQ:ESRX) make money by doing it (Express Scripts is perhaps best known for its fight against Gilead Sciences' hepatitis c drug Sovaldi, although it's been taking a hard line on pharmaceuticals for years, perhaps most notably banning GlaxoSmithKline's Advair in favor of AstraZeneca's Symbicort). If Medicare could, there could be some serious money saved.

And thirdly, reducing Medicare Advantage outlays. According to MedPac, Medicare currently pays 6% more on average for each member on a Medicare Advantage plan than in traditional fee-for-service Medicare.

Will all three, or any of these three, actually come to fruition? Who knows. But a serious conversation about Medicare spending will likely focus on some of these huge factors.

In the video below, Motley Fool health care analysts Michael Douglass and David Williamson lay out some of the potential winners and losers if Medicare successfully uses one or more of these strategies to reduce cost. 

Another revolutionary opportunity -- with 1 clear winner
The best investors consistently reap gigantic profits by recognizing true potential earlier and more accurately than anyone else. Let me cut right to the chase. There is a product in development that will revolutionize not just how we treat a common chronic illness, but potentially the entire health industry. Analysts are already licking their chops at the sales potential. In order to outsmart Wall Street and realize multi-bagger returns you will need The Motley Fool's new free report on the dream-team responsible for this game-changing blockbuster. CLICK HERE NOW.

David Williamson owns shares of Express Scripts and UnitedHealth Group. Michael Douglass has no position in any stocks mentioned. The Motley Fool recommends Express Scripts, Gilead Sciences, and UnitedHealth Group. The Motley Fool owns shares of Gilead Sciences and Express Scripts. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers