The Center for Medicare and Medicaid Services (CMS) recently announced a $740 million savings last year in the Medicare accountable care organizations (ACOs). (here) While this seems like a lot of money (and it is), it needs to be put in perspective with some background.

Officials overseeing the Medicare program began using ACOs a few years ago to hold down costs and reimburse providers based on “quality” measurements. These quality measures were determined by the federal government. There are several ways in which a Medicare ACO can be structured. Providers share any cost savings with the government and may or may not share in financial losses.

The goal is that doctors will be incentivized to provide quality care and will then be financially rewarded for doing so. This is also known as pay-for-performance.

Last year, 60 million Americans, were enrolled in Medicare. Twelve million, or 20 percent of all Medicare enrollees, opted to participate in ACOs. (here) Overall federal spending on Medicare for 2018 was $605 billion. (here)

Although $740 million is certainly a large sum of money, it represented only 0.1 percent of overall Medicare spending last year. This is hardly a victory for pay-for-performance health care.

There is virtually complete agreement that the Medicare program is not financially sustainable in its present form. (here) As a country, we have a moral obligation to seniors already enrolled in the program and to those approaching retirement age. A simple first step to Medicare reform would be to gradually raise the age of eligibility. When the program started in 1965, the average life expectancy in the U.S. was 67 years for men and 74 years for women. Average life expectancy is now up to 76 years for men and 81 years for women, straining an entitlement program that was not designed to provide health services to people for so many years late in life.

 Another simple Medicare reform would be more thorough means-testing, not just in Part B. Wealthier seniors would pay more and low-income people would pay less. As it stands now, there is, understandably, no private insurance market for seniors. Any private market was crowded out long ago by Medicare. It is virtually impossible to compete with the government, which has monopoly power and an unlimited ability to fix prices and lose money while any potential competitors go out of business.

 The private market for the elderly could be resurrected by allowing people to opt out of Medicare voluntarily and allowing those seniors to purchase health savings accounts and high-deductible health plans. Low-income seniors could use vouchers or some type of subsidized premium support that would allow them to purchase health insurance in the private market.

 Physicians should be allowed to seek partial payments from patients or their insurance companies, which by law, they cannot do now unless they leave the Medicare program entirely.

 Future generations should be allowed to continue the individual health insurance they want to keep into retirement. Not surprisingly, younger people as a group are healthier than older people, so as the younger generation saves, their health insurance nest egg would build until they need it in their later years.

Solutions to the impending Medicare financial crisis are available. ACOs don’t seem to be a significant part of those solutions.