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Trims to Medicare, Medicaid Are Proposed to Help Fund Reform

By Lori Montgomery and Scott Wilson
Washington Post Staff Writers
Sunday, June 14, 2009

President Obama yesterday outlined measures to trim spending on federal health programs for the elderly and the poor by an additional $313 billion over the next decade, bringing his total proposed savings close to the amount necessary to cover the cost of his signature health-care plan, a top adviser said.

In his weekly radio address, Obama proposed limiting the growth of Medicare fee-for-service payments, taking hospitals and other health-care providers at their word that they will reduce costs. He also proposed cutting subsidies to hospitals that treat uninsured patients on the theory that such payments will decline as more people are covered through his plan.

The president also called for reducing payments to drug companies that serve Medicare recipients. Advisers declined to release details, saying the idea is still under discussion.

"These savings underscore the fact that securing quality, affordable health care for the American people is tied directly to insisting upon fiscal responsibility," Obama said. "And these savings are rooted in the same principle that must guide our broader approach to reform: We will fix what's broken, while building upon what works."

Obama and his senior advisers have identified rising health-care costs as the biggest long-term drag on the federal budget, mainly because of the sharply escalating costs of the Medicare and Medicaid programs. He has said that reining in health-care costs is the key to reducing the deficit and has vowed that his plans for reform will require no additional borrowing.

The radio address capped a week during which Obama emphasized in and away from Washington the importance of health-care reform. He held a town hall forum in Green Bay, Wis., on Thursday, and he asked that this fall, congressional leaders send him legislation extending health insurance to the 47 million Americans without it. As he said in his radio message yesterday, "I know some question whether we can afford to act this year. But the unmistakable truth is that it would be irresponsible to not act."

His offer of new spending cuts comes against a backdrop of public concern over the nation's fiscal health and long-term spending plans that even he has acknowledged would lead to "unsustainable" deficits. His 10-year budget would shrink the $1.3 trillion annual deficit left by the Bush administration before allowing it to widen again in its final years.

By requiring cuts in federal payments to health providers, the measures would go a long way toward ensuring that innovations produce savings for the federal government and restrain runaway growth in spending on Medicare and Medicaid.

Congressional budget analysts agree that the approach will save money, and the Senate Finance Committee has included two of Obama's biggest money-saving ideas on a list of financing strategies.

"We are examining a wide range of options as we work with the president to craft bipartisan legislation that can become law this year," Sen. Max Baucus (D-Mont.), the Finance Committee chairman, said yesterday in a statement. He applauded Obama's "commitment to our shared goals of lowering health care costs and ensuring quality, affordable care for all Americans."

But many lawmakers are not enthusiastic about slashing payments to hospitals and other providers without clear evidence that the cuts will not hurt patients back home. Even small cuts on the Senate Finance Committee list have provoked widespread grumbling.

Aides in the Senate Finance and House Ways and Means committees, whose members are working to draft health reform financing plans, said yesterday that Obama's new proposals would "raise some hackles" and spur "some pushback."

The cuts Obama proposed yesterday would bring the total savings he has identified to pay for health-care reform to $950 billion, an amount that may still not be enough to cover the full cost of reform. Some outside analysts have said that Congress may have to spend $1.5 trillion or more over the next decade to extend coverage to all Americans.

"These savings will come from common-sense changes," Obama said. "For example, if more Americans are insured, we can cut payments that help hospitals treat patients without health insurance. If the drugmakers pay their fair share, we can cut government spending on prescription drugs."

Lawmakers have yet to finalize details of the reform plans moving through Congress, much less submit them to congressional budget analysts for a cost assessment. White House budget director Peter Orszag said $950 billion is "in the ballpark" of the plans under consideration. Congressional sources confirmed that, saying lawmakers are looking at plans that would cost about $1 trillion over the next decade, with the annual cost ramping up to about $150 billion by 2019.

In February, Obama's budget request set aside $635 billion for health-care reform, about half in cuts to Medicare and Medicaid and half in new taxes. Orszag called the additional savings Obama outlined yesterday an "unprecedented" effort to "put down in such clarity how reform will be financed."

Orszag said the cuts proposed yesterday would save the government money in the short term and "spur productivity in a way that does not exist under current law." They would also save Medicare patients money -- as much as $43 billion in reduced premiums for prescription drug coverage over the next 10 years.

After weeks of loud demands for Obama to cut spending, Republicans reacted cautiously to the proposal. House Minority Leader John A. Boehner (R-Ohio) said, "There is no doubt that Medicare and Medicaid need reform, but serious changes should not be rushed through Congress as part of a new government-run program that will raise taxes and make health care more expensive, costing middle-class families even more."

Tomorrow, Obama is scheduled to speak in Chicago to the American Medical Association, a trade organization wary of the president's reform plans.

Another interest group, AARP, said yesterday that it "agrees that there are ways we can eliminate wasteful spending and inefficiencies from Medicare -- such as reducing preventable hospital readmissions or overpayments to drug companies -- that will actually improve care and strengthen the program." The organization, known formerly as the American Association of Retired Persons, has 40 million members.

"We want to make certain that any Medicare savings proposals will reduce beneficiaries' premiums and deductibles so that our members realize real savings in their own out of pocket spending, which has been increasing at a rapid rate," David Sloane, the group's senior vice president for government relations and advocacy, said in a statement. "At the same time, we also believe that some of these savings should be reinvested in filling the gaps in Medicare coverage."

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