Obama’s Deficit Plan Calls For $248 Billion In Medicare Savings, Changing ‘The Way We Pay For Health Care’

As Matt Yglesias points out, the big health care news in President Obma’s deficit plan is his willingness to put a line in the sand against cutting Medicare benefits without raising new revenue. But just as important is Obama’s commitment to reduce federal health care spending by modernizing the health care system — changing the way health care is paid for rather than simply reducing payments to providers. As he put it, “we’ll change the way we pay for health care. Instead of just paying for procedures, providers will be paid more when they improve results.” Watch it:

Many of these proposals build on the savings in the Affordable Care Act and most have already been introduced by the administration in the President’s April deficit reduction proposal. He’s offering $248 billion in Medicare savings and $72 billion in savings from Medicaid and other health care programs. Raising the Medicare eligibility age — which the administration had flirted with in the past — is off the table and instead the President is focusing on finding savings on the provider end, while also asking wealthier beneficiaries to pay more for coverage. Below are some of the savings:

— Extend Medicaid drug rebates: Allow Medicare to benefit from the lower drug rebates that Medicaid receives for brand name and generic drugs beginning in 2013. This option is estimated to save $135 billion over 10 years.

— Increase means testing in Medicare Parts B and D premiums for higher-income beneficiaries: Under Medicare Parts B and D, certain higher-income beneficiaries must pay higher premiums. “Beginning in 2017, the Administration proposes to increase income-related premiums under Medicare Parts B and D. It also extends the freeze in the income thresholds until 25 percent of beneficiaries pay the higher premium.”

— Expand the Independent Payment Advisory Board (IPAB): The administration is reiterating its proposal to reduce the target at which the IPAB begins looking for savings from GDP per capita plus 1 percent to plus 0.5 percent. The board would also have additional powers to “consider value-based benefit design and enforcement mechanisms.”

— Greater state flexibility to opt-out of Affordable Care Act: The ACA already encourages governors to develop their own strategies for expanding access and reducing costs by allowing states to opt out of certain requirements in 2017. The administration wants to bump up that date to 2014.

— Encourage new Medicare beneficiaries to use high-value services: Apply a $25 increase to the Part B deductible in 2017, 2019, and 2021 for new beneficiaries, create a home health copayment of $100 per home health episode, applicable for episodes with five or more visits

— Blended rate for Medicaid: Beginning in 2017, the administration would replace “the currently complicated formulas with a single matching rate specific to each State based on enrollment starting in 2014 that automatically increases if a recession forces enrollment and State costs to rise.” Many progressive groups believe that this would have the effect of shifting more program costs to the states.

You can read the full fact sheet here. Bottom line is — if what’s driving health care costs at the federal level is national health expenditures, modernization that addresses costs and pays for more efficient care is really the only way of producing long-term savings. Proposals like expanding IPAB and changing payment rates to promote greater efficiency and reduce hospital readmissions are initiatives that will begin to move us in that direction.


Jon Cohn agrees: “There’s enough here to generate some real savings in Medicare, above and beyond what the Affordable Care Act would generate, but not in a way that will put more seniors at risk. And that’s the real point Obama is trying to make here: His plan to save Medicare (and Medicaid) is to reform the program gradually, focusing on changes to the way it pays for Medicare, rather than gutting the program.”

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