Health Provisions in Obama’s Deficit Plan Good for Campaigning

September 20, 2011
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There’s a lot to like in the health care provisions of the Obama administration deficit reduction plan, which reduces Medicare and Medicaid costs by $320 billion over the next decade (this on top of the half trillion in cuts included in health care reform). Half the money in Medicare “cuts” ($135 billion) would come from allowing beneficiaries to purchase drugs at the same prices as Medicaid. Nursing homes and home health firms also have their excessive payments curbed.

There’s a lot to like in the health care provisions of the Obama administration deficit reduction plan, which reduces Medicare and Medicaid costs by $320 billion over the next decade (this on top of the half trillion in cuts included in health care reform). Half the money in Medicare “cuts” ($135 billion) would come from allowing beneficiaries to purchase drugs at the same prices as Medicaid. Nursing homes and home health firms also have their excessive payments curbed.

Here’s the reality. Despite what every special interest group said in their press releases this afternoon about this proposal (PhRMA: It will cost jobs; BIO: It will cost jobs; American Hospital Association: It will cost jobs), I don’t believe for one minute the hogwash that making the well-off pay their fair share on taxes, in health care or anywhere else is going to set the economy back. If recycling wealth upward while imposing austerity on the public sector were a prescription for rapid economic growth, unemployment would be 4%.

It’s hard not to draw the conclusion that the $3 trillion deficit reduction package was designed with a nod to key Democratic Party constituencies, since it has no chance of adoption on Capitol Hill. Let’s start with all the good things in the proposal, which are in addition to cutting payments to providers: 

  • It leaves the Medicare retirement age at 65 (rejecting the demands of deficit hawks who wanted to raise it to 67. Why they want to do this, I’ll never know, since that leaves 65- and 66-year-olds, whose health care is generally the most expensive among the working population, on the insurance plans of their employers, who will have to pick up the tab).
  • Ends pay-for-delay schemes between the brand name pharmaceutical industry and generic firms.
  • Reduces the exclusivity period for biotech drugs to seven years from 12 years.
  • Strengthens the Independent Payment Advisory Board, and requires that it make proposals that will slow health care cost growth to GDP + 1/2%, not just the GDP + 1% in the health care reform law. The strengthening includes allowing IPAB to impose Value-Based Insurance Design schemes on some or all Medicare services (higher co-pays for drugs, procedures and services of lesser value), and a requirement that Congress do across-the-board cuts if it doesn’t meet the cost control goals set by IPAB.
  • Makes durable medical equipment makers compete on price in Medicaid, as it already does in Medicare.
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All win-win for patients and consumers? Not exactly. It also:

  • Raises Part B (doctors’ visits) and Part D (drug coverage) premiums down the road for 25% of seniors with the highest after-tax income. These are the parts of Medicare that are already partially means-tested.
  • Creates higher deductibles for new enrollees, and puts a surcharge on Medicare beneficiaries who purchase Medigap policies that have no cost-sharing or very low cost-sharing. Cost-controllers balk at these policies since they insulate seniors from the true cost of every expensive, ineffective form of care their doctor cares to order. The AARP is opposed to this measure, but they have a conflict of interest since they sell the policies.
  • Cuts $3.5 billion from the prevention fund set up under reform (that still leaves $13.8 billion over 10 years for prevention projects in communities).
  • Reduces federal subsidies for the Children’s Health Insurance Program by $15 billion over ten years (hopefully reform’s insurance expansion will nullify the negative impact of this cutback).
  • Counts Social Security income for seniors who are on Medicaid when calculating benefits under the health care reform law (I was told today that this is considered a “glitch” in the reform law because it it doubly subsidizes some people, so perhaps this isn’t so bad).
  • And the proposal cuts federal Medicaid payments to states if they tax providers and kick back the money as a way of increasing their federal reimbursement (which is half the higher rate). This will cost states $26.3 billion over ten years.

Hospitals take a number of minor whacks under the plan. Medical education payments to teaching hospitals are reduced by $9 billion over the next decade; payments to rural hospitals take a $6 billion hit; and the higher Medicaid payments sent to hospitals with high poverty patient loads are reduced by $14.6 billion, based on the assumption their insurance coverage under reform will pick up the tab.

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Given the rapidity with which the special interests are mobilizing to oppose the measures, and the virulent opposition by Republicans, none of this is likely to see a presidential signature in the next 14 months. President Obama’s pledge to veto any cuts in Medicare and Medicaid that were not accompanied by some of the tax increases in the plan only insures that outcome.

Still, we’re likely to hear a lot about it on the campaign trail. If you’re in a populist frame of mind, there will be a lot there to like.