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CQ – Obama plan would make $320 billion in health cuts, including Medicare, Medicaid

CQ – Obama plan would make $320 billion in health cuts, including Medicare, Medicaid


The deficit reduction plan President Obama announced Monday morning includes $320 billion in health cuts over a decade;

$248 billion of the reductions would come from Medicare and $73 billion from Medicaid.

What Obama did not recommend was an increase in the Medicare eligibility age, something that up until this past weekend White House aides said was still being discussed in the West Wing.

The biggest reductions from the $248 billion in Medicare savings in the administration plan would come from requiring drug makers to give the price breaks they now give Medicaid beneficiaries to low-income Medicare enrollees who receive comprehensive drug benefits through what officials call the LIS, or low-income subsidy. This would save $135 billion over 10 years.

Post-acute care providers — skilled nursing facilities, long-term care hospitals, inpatient rehabilitation facilities, and home health agencies — would face reductions totaling $42 billion over that period.

The plan would save another $20 billion by raising premiums for high income Americans for Part B and Part D of Medicare, starting in 2017. More Americans would have to pay these higher monthly charges.

The biggest savings from the $73 billion in Medicaid cuts would come from limiting how much states could charge in taxes on providers as a way to increase federal matching funds. This change would save $26 billion.

In his Rose Garden remarks, Obama said that his plan includes “structural reforms to reduce the cost of health care in programs like Medicare and Medicaid.

“Keep in mind we’ve already included a number of reforms in the health care law, ” he said. But he added that he would also propose to change payment incentives in the federal health programs and work with governors to address their concerns about the costs of Medicaid. All the changes will be phased in slowly, he said.

Obama would not support a voucher plan for Medicare. “We will reform Medicare and Medicaid but we will not abandon our fundamental commitment” to the poor, elderly and vulnerable, he said.

Plan extends Medicare trust fund

Office of Management and Budget documents say that Obama’s Medicare proposals would extend the solvency of the Medicare Hospital Insurance Trust Fund by about three years.

Those estimates are presented in the context of a baseline that assumes Congress will act separately to permanently avert physician payment reductions that would otherwise occur under the “sustainable growth rate” formula. “Failure to do so simply masks the worsening long-run deficit,” says the OMB document.

One way in which that would be accomplished is in a revised approach to debt collection that likely will bring howls from many providers. For most providers, Medicare now generally reimburses 70 percent of bad debts resulting from beneficiaries’ nonpayment of deductibles and copayments after providers have made reasonable attempts to collect. Obama wants to more closely bring the bad debts policy into alignment with what goes on in the private sector, and would reduce the reimbursement to 25 percent, phasing in the new ratio over three years beginning in 2013. That would save $20 billion over 10 years and is similar to recommendations from the president’s fiscal commission.

In a proposal that’s certain to prove unpopular with Democratic supporters of preventive health, Obama proposed to slice $3.5 billion over 10 years from the health care law’s (PL 111-148, PL 111-152) prevention and public health fund. (See related story, CQ HealthBeat, March 9, 2011).

That would leave $13.8 billion for “effective, evidence based activities” in the fund, according to administration talking points. The fund has been targeted by Republicans but zealously guarded from cutbacks by Democrats like Senate Health, Education, Labor and Pensions Committee Chairman Tom Harkin of Iowa. “We have little doubt that some of these proposals will not be popular with all those they effect,” the administration acknowledged.

The plan outlines a series of steps designed to encourage Medicare beneficiaries to use what the administration calls “high-value health care services, These changes would not, the memo says, affect seniors currently in the program.

These include a call to increase the Part B deductible by $25 in 2017, 2019 and 2021 for new beneficiaries This is estimated to save $1 billion over 10 years.

Obama listened to MedPAC

Some of the proposals for health savings mirror recommendations made earlier by the president’s fiscal commission, or they were floated during earlier deficit reduction talks between House Majority Whip Eric Cantor, R-Va., and Vice President Joseph R. Biden. Many will arouse intense opposition. In addition, some track with Medicare Payment Advisory Commission recommendations.

For example, the president says he would save $900 million over 10 years by requiring prior authorizations for “the most expensive” advanced imaging services. If enacted this would be the first time that traditional fee for service Medicare has ever required prior authorization for a service, though the practice is common in private insurance. (See related story, CQ HealthBeat, July 22, 2011).

MedPAC in June urged a more limited prior authorization program that would have applied just to physicians who ordered substantially more advanced scans than their peers.

The exploding use of such services has made them a target. The Government Accountability Office has found that from 2000 through 2006, Medicare spending for all physician-based imaging more than doubled — to about $14 billion. Spending on more-costly advanced imaging rose much faster than other standard tests, such as ultra sounds and X-rays, GAO said.

Another sensitive area of spending in the Obama plan is payments to rural hospitals. Medicare makes a number of special payments to rural hospitals to offset costs incurred in delivering care in thinly populated areas. In some cases these payments “may be greater than necessary,” OMB says.

The Obama plan aims to save an estimated $6 billion over 10 years in rural hospital payments. Obama would end an add-on payment for hospitals and physicians in low population states by 2013. Also, payments would be reduced from 101 percent to 100 percent of reasonable costs for Critical Access Hospitals and the Critical Access Hospital designation would be eliminated entirely for hospitals fewer than 10 miles from the nearest hospital.

Obama would also begin home health cost-sharing for new beneficiaries, something MedPAC also recommended. (See related story, CQ HealthBeat, Jan. 13, 2011).

The proposal could create a home health co-payment of $100 per episode. This would apply to medical episodes that require five or more home health care visit and it would not apply to people just coming out of the hospital or to other inpatient post-acute care stays. That is estimated to save $.4 billion over a decade.

Also for new beneficiaries and in an attempt to encourage “efficient” choices for Medigap policies, Obama proposed a part B premium surcharge that would equal about 15 percent of the average Medigap premium for policies that have particularly low cost-sharing requirements. That proposal would save $2.5 billion over 10 years.

It will be difficult for Obama to get his proposed cuts, said Dan Mendelson, president of the consulting firm Avalere Health and the top health budget official in the Clinton administration.

“I consider these to be very difficult numbers to meet, frankly,’’ Mendelson said. “It’s puzzling to me how much he’s focusing on Medicare at a time when the link between Medicare spending and jobs is very close. The fact is that health care institutions are about 70 percent labor.” Providers will resist the cuts by pointing out that jobs will be lost, at a time when adding jobs is the most important economic priority, he said.

“I’m searching for the wisdom here,” Mendelson added. The administration has also just launched a strategy of trying to lower entitlement cuts by proposing tax increases on well-to-do Americans.

So announcing cuts at the same time steps on that message, Mendelson said. The tax hikes also will involve a tough political fight. “It’s introducing two fronts in the war. Either it’s brilliant or I don’t get it,” Mendelson said.