Health Care Reform Portion Leaked Out Of Budget

Armen Hareyan's picture

Pieces of the health care portion of the Obama budget are leaking out. Based upon published reports, the Obama “down payment on health care reform” will include:

  • $634 billion to help pay for health care reform over the next ten years.
  • $318 billion of that—about half—will come from tax increases that include reducing the mortgage and charity deduction for high income Americans.
  • Charging wealthier seniors more for the Medicare Part D drug benefit—as is done for Medicare Part B now.
  • Cutting Medicare HMO payments by $175 billion over ten years.
  • Reducing Medicare hospital payments by $17 billion over ten years by bundling inpatient and outpatient reimbursement to include the 30-days after discharge.
  • Cutting Medicare hospital payments by $8.4 billion over ten years for re-admissions resulting from substandard care.
  • Requiring drug makers to increase the rebates on drugs sold to Medicare patients from 15% to 21% saving $19.5 billion over ten years.

The biggest spending reduction is the cut to Medicare HMO payments. This one is hardly a risky political move as everyone has expected it. That said, in no event would they get the full $175 billion in savings because it is simply impractical to implement such a major change in the Medicare Advantage program by the next enrollment season which begins late this fall.

Interestingly, the Obama budget reportedly calls for creating a system where the private Medicare plans will bid market to market to compete with the traditional Medicare plan rather than continuing the current system where the government tries to set the rates for them.

Ironically, that was the original Republican idea for using the competitive value of managed care to reduce long-term Medicare costs and is what should have happened in the first place rather than this temporary system of overpayments the HMO industry has been fighting to keep permanent.

With $318 billion in tax increases and another $175 billion in Medicare HMO cuts, the $634 billion "down payment" only contemplates a total of another $141 billion in federal health care cuts <>over ten years (which amounts to about 1% of annual federal spending each year). That is hardly a rounding error on a federal health care budget that CMS just announced will already total $1.19 trillion in just 2009.

This week, CMS estimated that at present trends annual national health care spending would reach $4.35 trillion or 20% of GDP by 2018.


If the Obama administration is serious about not “kicking the can further down the road” then any overhaul of our health care system has to do more than fritter around the edges with spending reductions.

More, it needs to be paid for from real savings—not half of the "down payment" coming from tax increases as they are reportedly proposing.

If the plan is to raise taxes to pay for a big part of health reform that just means they better raise enough taxes to pay for the $4 trillion health care system CMS says we are going to have in 2018.

As the budget details come out over the next few days the question we all need to be asking is, Just what is this administration willing to do to make health care affordable over the next ten years?

Affordability will have a lot more to do with the how this administration deals with the $2.5 trillion we already spend every year not whose taxes we can raise.

The author of this story is Robert Laszweski who has been a fixture in Washington health policy circles for the better part of three decades. He currently serves as the president of Health Policy and Strategy Associates of Alexandria, Virginia. Before forming HPSA in 1992, Robert served as the COO, Group Markets, for the Liberty Mutual Insurance Company. You can read more of his thoughtful analysis of healthcare industry trends at The Health Policy and Marketplace Blog.

Reprinted from The Health Care Blog.