How Obama Would Cut Medicare and Medicaid

Yesterday, President Obama finally entered the debate about the national debt with a proposal to reduce US government borrowing by $4 trillion over the next 12 years. The proposal called for higher taxes on rich folks as well as deep cuts in military and domestic spending, including Medicare and Medicaid.

But unlike an earlier proposal by Representative Paul Ryan (R-Wisconsin), the Big O’s plan did not include making fundamental changes to the 2 US health entitlement programs, nor did it scale back the primary objective of the health reform law passed last year (the Affordable Care Act, or ACA), which is to provide health-care coverage for millions of uninsured Americans.

“We don’t have to choose between a future of spiraling debt and one where we forfeit investments in our people and our country,” he said. “To meet our fiscal challenge, we will need to make reforms. We will all need to make sacrifices. But we do not have to sacrifice the America we believe in. And as long as I’m president, we won’t.”

Ryan’s plan calls for Medicare beneficiaries to select from a pool of private insurance programs, and for the feds to pay a fixed amount of premium funds to the insurer chosen by each beneficiary. Additional costs would have to be borne by the beneficiary.

The president’s plan calls for $480 billion in cuts to Medicare and Medicaid by 2023, and a beefed-up role for the Independent Payment Advisory Board (IPAB), the new independent panel formed by the ACA as a watchdog against health cost escalations.

Responding to the Ryan proposal, Obama said, “Let me be absolutely clear: I will preserve these healthcare programs as a promise we make to each other in this society. I will not allow Medicare to become a voucher program that leaves seniors at the mercy of the insurance industry, with a shrinking benefit to pay for rising costs.”

The cornerstone of Obama’s proposal was a provision that empowers the IPAB to make cost reduction recommendations to Congress in the event that Medicare costs grow faster than the per-capita Gross Domestic Product plus 1%. The provision requires that these recommendations must not impede beneficiaries’ access to appropriate services. Now, Congress wouldn’t have to follow the advice from the IPAB. It could institute its own solution so long as it achieved the target reductions. In the event that Congress failed to act however, the Secretary of HHS would be required to develop and implement a plan that hit the target.

A second part of Obama’s proposal called for creating a single matching rate for all Medicaid program spending that “rewards states for efficiency and automatically increases if a recession forces enrollment and state costs to rise.”

A third part, sure to enrage Big Pharma and Biotech, would “limit excessive payments for prescription drugs by leveraging Medicare’s purchasing power,” according to White House officials. The plan also calls for making generic biological available more quickly and banning “pay for delay” agreements between Big Pharma and generics manufacturers that delay the introduction of generic drugs and biologicals.

And of course, there was the obligatory hand-wave in the direction of reducing fraud and abuse by Medicare and Medicaid providers…an initiative that has been underway for almost as long as the entitlement programs have been operational.

Many of these plans had been presented last year by the bipartisan Simpson-Bowles deficit reduction commission that had been appointed by Obama more than a year ago.