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Health Care In President Obama’s Deficit Reduction Plan



April 13th, 2011
by Chris Fleming

Today President Obama, in a speech at George Washington University, is presenting a framework for long-term deficit reduction and entitlement reform. The White House says the plan will provide $4 trillion of deficit reduction in 12 years of less. Here’s what a White House fact sheet says about the health care aspects of the President’s plan:

Medicare and Medicaid Savings of $480 Billion by 2023 and At Least an Additional $1 Trillion over the Subsequent Decade, Providing Better Care at Lower Costs:

  • Building on the Affordable Care Act, the President is proposing additional reforms to Medicare and Medicaid designed to strengthen these critical programs by reducing waste, increasing accountability, promoting efficiency, and improving the quality of care, without shifting the cost of care to our seniors or people with disabilities.
  • The framework will save $340 billion over ten years and $480 billion by 2023 (including the proposals already included in the President’s Budget). This framework includes the same aggregate savings that House Budget Committee Chairman Paul Ryan proposed in his November 2010 plan with Alice Rivlin and an amount sufficient to fully pay to reform the Medicare Sustainable Growth Rate (SGR) physician payment formula while still reducing the deficit.
  • Over the subsequent decade, the President’s proposal will save well over $1 trillion by further bending the cost curve, doubling the savings from the Affordable Care Act.
  • The President’s framework offers a stark contrast with the House Republican plan that would increase seniors’ health costs by $6,400 annually starting in 2022, raise health insurance premiums for middle-class Americans and small businesses, cut Federal Medicaid spending by one-third by the end of the decade, and increase the number of uninsured by 50 million.

The President’s framework proposes specific reforms to strengthen Medicare and Medicaid over the long term, including:

– Addressing the long-term drivers of Medicare cost growth: The President’s framework would strengthen the Independent Payment Advisory Board (IPAB) created by the Affordable Care Act. The IPAB has been highlighted by economists and health policy experts as a critical contributor to Medicare’s solvency and sound operations. Under the Affordable Care Act, IPAB analyzes the drivers of excessive and unnecessary Medicare cost growth. When Medicare growth per beneficiary exceeds growth in nominal GDP per capita plus 1 percent, IPAB recommends to Congress policies to reduce the rate of growth to meet that target, while not harming beneficiaries’ access to needed services. Congress must consider IPAB’s recommendations or, if it disagrees, enact policies that achieve equivalent savings. If neither acts, then the Secretary of Health and Human Services would have to develop and implement a proposal to achieve the savings target.

The President’s framework will strengthen IPAB to act as a backstop to the other Medicare reforms by ensuring that Medicare spending growth does not outpace our ability to pay for it over the long run, while improving the program and keeping Medicare beneficiaries’ premium growth under control. Specifically, it would:

  • Set a new target of Medicare growth per beneficiary growing with GDP per capita plus 0.5 percent. This is consistent both with the reductions in projected Medicare spending since the Affordable Care Act was passed and the additional reforms the President is proposing.
  • Give IPAB additional tools to improve the quality of care while reducing costs, including allowing it to promote value-based benefit designs that promote proven services like prevention without shifting costs to seniors.
  • Give IPAB additional enforcement mechanisms such as an automatic sequester as a backstop for IPAB, Congress, and the Secretary of Health and Human Services.

– Reforming the Federal-State partnerships to strengthen Medicaid and promote simplicity, efficiency, and accountability: Under current law, States face a patchwork of different Federal payment contributions for Medicaid and the Children’s Health Insurance Program (CHIP). The President’s framework would replace the current complicated Federal matching formulas with a single matching rate for all program spending that rewards States for efficiency and automatically increases if a recession forces enrollment and State costs to rise.

In addition, the President has called on the National Governors Association (NGA) to make recommendations for ways to reform and strengthen Medicaid, and the framework will consider the ideas that its Task Force produces. The President also supports reform of Medicaid to incentivize more efficient, higher quality, care for high-cost beneficiaries, including those who are eligible for both Medicaid and Medicare. These nine million beneficiaries comprise 15 percent of Medicaid enrollment but consume nearly 40 percent of total Medicaid spending.

– Improving patient safety: Together with employers, States, hospitals, physicians and nurses, the Administration has launched a new public-private partnership called Partnership for Patients that will help improve the quality, safety and affordability of health care for all Americans. The two goals of this new Partnership are: preventing patients from getting injured or sicker while they are in the hospital and helping patients heal without complication. Achieving the initiative’s goal would mean more than 1.6 million patients will recover from illness without a preventable complication, reducing costs by up to $50 billion in Medicare and billions more in Medicaid over the next 10 years.

– Cutting unnecessary prescription drug spending: The framework would limit excessive payments for prescription drugs by leveraging Medicare’s purchasing power – similar to what was called for by the bipartisan Fiscal Commission. It would speed up the availability of generic biologics, and prohibit brand-name companies from entering into “pay for delay” agreements with generic companies. And, it would implement Medicaid management of high prescribers and users of prescription drugs.

– Reducing abuse and increasing accountability in Medicaid and Medicare: The framework would clamp down on States’ use of provider taxes to lower their own spending while not providing additional health services through Medicaid; recover erroneous payments from Medicare Advantage; establish upper limits on Medicaid payments for durable medical equipment; and take other actions to improve program integrity.

A major contrast with the House Republican approach. The President’s framework rejects plans that would end Medicare as we know it or transform Medicaid into a dramatically underfunded block grant, putting at serious risk not only seniors but also the most vulnerable children and people with disabilities. Some of the major problems with the House Republican approach include:

– The House Republican plan does nothing to reduce health costs. Instead it actually increases costs by doing nothing to reform the way health care is delivered in addition to putting a larger fraction of the burden on beneficiaries and States.

  • In the first year the Republican plan goes into effect, a typical 65-year-old who becomes eligible for Medicare would pay an extra $6,400 for health care, more than doubling what he or she would pay if the plan were not adopted.
  • States would get one-third less for Medicaid by 2021, potentially leaving 15 million people without coverage, including seniors in nursing homes, people with disabilities, children and pregnant women.

– The House Republican plan would no longer guarantee the same level of benefits and choices that seniors have today in Medicare, because the proposal allows private health plans to determine benefits, raise cost sharing, and limit choice of doctors and hospitals.

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1 Trackback for “Health Care In President Obama’s Deficit Reduction Plan”

  1. What if Medicare’s drug benefit was more like the VA’s? | The Incidental Economist
    April 14th, 2011 at 6:58 am

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