Obama’s Medicare and Medicaid Cuts: Not Grave, But Also Not Trivial
“Obama and the left back in sync,” Politico blares. “Plan Calms Democrats’ Concerns On and Off Hill,” Sam Stein writes. The latter is more correct. “Relief” would be a good word in reaction to a plan that easily could have included an increase in the Medicare eligibility age and a switch to chained CPI, a benefit cut for Social Security, food stamps and veteran’s benefits recipients.
But the overall context is this: the President wants to use a Super Committee with a mandate to make a minimum of $1.2 trillion in cuts to make almost three times that. And you cannot get that process done simply by taxing the rich. There is a roughly 1:1 ratio between spending cuts and tax increases in the overall plan, if you take into account the $900 billion already cut by the debt limit deal (for some reason the White House scores that as $1.2 trillion, contra the CBO). But the cuts that are in the plan are damaging for those communities who will feel them. And there are a number of fee hikes that will hit ordinary people as well.
I don’t want to get too far with this analysis. Yesterday’s speech, and the plan as a whole, is more of a political document. Republicans won’t agree to the tax hikes, and the whole plan falls apart without them. But that doesn’t mean that the endorsement in writing from a Democratic President to some of these proposals doesn’t carry weight.
For the moment, let’s just look at the health program cuts, on Medicare and Medicaid. Jonathan Cohn did the work and found that the $320 billion in cuts include payment reforms, a drug rebate, some means testing and an increase in cost-sharing on select procedures.
The biggest, most recognizable changes (at least to those of us who follow health policy) are larger drug rebates for the Medicare program, which is basically demanding that the pharmaceutical industry reduce what the government pays for prescription drugs, and higher Part B premiums for wealthier seniors. Those higher premiums would not start until 2017.
Also of note are increases in cost-sharing under some very limited circumstances. This is actually something conservatives should like, at least in theory, since it’s arguably a version of what they call “consumer-directed care,” albeit in a very small dose. In a nutshell, seniors would have to pay slightly higher out-of-pocket costs for home health care and Part B services, plus they’d have to pay a surcharge on their premiums if their Medigap policies have “first-dollar” coverage (in other words, if their Medigap policies don’t have any cost-sharing). The hope is that exposing seniors to incrementally higher out-of-pocket costs would make them a little more wary of using services that might not be necessary […]
Finally, this proposal, like previous ones the president has made, would make it easier to introduce “value based insurance design.” VBID, as it’s known, is a more elegant way to restructure benefits, so that people pay more or less out-of-pocket based primarily on whether the services and treatments they’re getting actually add value.
The drug rebate is actually a watered-down version of the ability to negotiate with prescription drug companies, like the VA can do. But it does save $135 billion over ten years, almost half of the total cuts. There’s already means testing in Medicare, and this just gooses that a bit. And there are legitimate increases in out-of-pocket costs on home health care and Part B. The plan also expands the Independent Payment Advisory Board and endorses the Brown-Wyden plan to allow for a state opt-out by 2014 (right now it’s 2017) of the Affordable Care Act if they prove they have a plan that will provide comparable coverage and cost – this would be the single-payer opt-out for Vermont, for example. The benefit cuts here all don’t kick in until 2017.
There’s also a mini-version of the “blended rate” proposal for Medicaid and SCHIP, but it only saves $15 billion over 10 years. That may not be much spread over 50 states and a decade, but it’s still cost-shifting to them. And, it fixes a “glitch” that would have allowed early retirees to secure Medicaid at a low cost. So being able to receive low-cost coverage for health care services is still seen as a “glitch.”
If this promotes better efficiency and eliminates some unnecessary treatments, that’s fine. I agree that Medicare cuts are not the same across the board. But that doesn’t mean that these ideas are being completely accepted by the health policy community.
“While we support cutting waste, fraud and abuse, we reject any proposal that cuts benefits in Medicare or Medicaid,” Reps. Raúl M. Grijalva (D-Ariz.) and Keith Ellison (D-Minn.), co-chairmen of the Congressional Progressive Caucus, said in a statement […]
Families USA, a liberal-leaning health policy group, sounded a similar note Monday, warning that proposed changes to Medicaid “shifts the burden to states and ultimately onto the shoulders of seniors, people with disabilities, and low-income families who depend on the program as their lifeline.”
“We will oppose those proposed cutbacks,” Ron Pollack, the group’s executive director, said in a statement. “The proposed Medicaid cuts, such as the reduced federal matching dollars to the states, make little sense.”
Pollack is usually a stalwart supporter of the White House.
More here. The simple fact of not doing stupid things like raising the eligibility age does not inoculate the plan on Medicare and Medicaid from criticism. This is not a perfect plan, and it leaves plenty of ideas on the table that would reduce health expenditures with no harm to beneficiaries. And while this is more of a campaign document, obviously these kinds of cuts would be first on the menu in a second term, or even if the Presidency goes to the Republicans. And we’ll hear “even Barack Obama supported…”
UPDATE: Here’s a very good visualization of where the cuts come from. They are focused heavily on the drug industry and broadly shared after that. You could definitely come up with worse plans. The fear, of course, is that the salutary parts of this will just get tossed out.
UPDATE II: I forgot to mention a couple other hits on the pharmaceutical industry in the plan. First, “pay-for-delay,” the method by which Big Pharma stops generic drug manufacturers from making competing products through payments, would be stopped. Second, the plan would reduce the exclusivity window for biologics from 12 to 7 years, making the expensive drugs available for generic production much quicker.