How the White House would save $320 billion in health-care costs

The White House proposed $320 billion in health-care cuts, largely from Medicare and Medicaid, in Monday’s deficit-reduction proposal. The big differences from its April deficit-reduction proposal? More cost-sharing in Medicare, fewer cuts to Medicaid and a big hit to the Prevention and Public Health Fund.


(Joshua Roberts/BLOOMBERG)

Savings found by increasing costs for Medicare beneficiaries, as opposed to providers, are arguably the biggest departure from the previous White House proposal on deficit deduction. The administration sees four places to increase Medicare cost-sharing, including $20 billion in savings by increasing how much higher-income beneficiaries contribute to their Part B and D premiums, which cover physician and drug coverage, respectively.

These proposals do edge close to the third rail of politics, cutting into benefits rather than provider payments. Even so, there are two reasons they’re unlikely to cause a huge uproar. To start, the benefit reductions would be relatively small: Aside from the cost-sharing for higher-income beneficiaries outlined above, the other increases would total only $3.9 billion. Not nothing, but also just more than 1 percent of the total health savings proposed. Second, that $20 billion cut would build on existing policy: In 2007, Medicare began requiring higher-income beneficiaries to pay a greater share of average Part B costs (35 to 80 percent, depending on their income).

For the first time, the White House suggests cutting from the new Prevention and Public Health Fund, a $16 billion investment in public health projects created by the new health-care law. The proposed $3.5 billion cut won’t be popular with congressional Democrats, especially Sen. Tom Harkin (Iowa), who made the fund a priority as chair of the Senate’s Health, Education, Labor and Pensions Committee. It isn’t a change the White House wants, either. “In tough times, we have to make decisions we might not otherwise make,” a senior administration official said explaining that proposal.

Proposed cuts to Medicaid, meanwhile, got scaled back from what advocates had expected. Particularly notable is the change in cost-savings that would come from moving to a “blended rate” funding formula. The switch would make funding for different Medicaid populations more uniform — and it makes Medicaid advocates nervous, as the administration looks to reduce spending in the process. The new funding proposal was estimated to account for more than half of the $100 billion in Medicaid cuts proposed in April. Now, it accounts for only $14.9 billion in cost savings.

Other than that, most changes are relatively familiar. Some proposals will be controversial, such as the White House’s reiterated commitment to strengthening the Independent Payment Advisory Board (even as some house Democrats work to repeal it). Some will get heavy industry pushback. The pharmaceutical industry is almost certain to lobby against the proposed $135 billion in savings from extending Medicaid drug rebates to Medicare’s prescription program, Part D.  

There is even a very small handful of items that shouldn’t get much pushback at all. Those are generally the savings that would be found in reducing Medicare and Medicaid waste, fraud and abuse. These kinds of proposals, to pare back improper payments by entitlement programs, have generally received widespread, bipartisan support.

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