Healthcare Business News

Medicare cuts expected in Obama budget, but not big structural changes

By Jessica Zigmond
Posted: April 8, 2013 - 8:45 pm ET

President Barack Obama's spending plan is expected to identify about $400 billion in Medicare cuts over the next 10 years. Few people, however, expect his budget blueprint to put the president's formal stamp on any major structural changes to the program.

Obama has signaled to federal lawmakers that he's open to making some significant Medicare policy changes to reduce the federal deficit, such as expanding means testing for higher-income individuals, combining hospital and physician services under one Medicare payment structure, or adding a surcharge to Medigap plans.

But sources emphasize that the White House's openness to those structural-entitlement reforms are contingent upon congressional Republicans agreeing to tax increases in the broader deficit-reduction discussion.

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The president's budget, which the White House plans to release Wednesday, more likely will wring healthcare savings in other ways.

“In Medicare in particular, the president still seems to want to do this without cutting benefits by trying to squeeze providers,” said Mike Tanner, senior fellow at the Cato Institute, a libertarian think tank. “We're going to see reducing Medicare reimbursement to hospitals and doctors,” Tanner said. He expects the document will detail about $200 billion in specific cuts and ascribe the remaining cuts to unspecified “healthcare savings.”

Obama's plan may include some tinkering around the edges of Medicare's benefit structure.

Edwin Park, vice president for health policy at the left-of-center Center on Budget and Policy Priorities, said he thinks any cost-sharing mechanisms in this year's budget will be very similar to the president's budget a year ago. Those changes last year included increasing Part B deductibles for new beneficiaries in 2017, 2019 and 2021; adding a home healthcare co-payment of $100 per home health episode for new beneficiaries in 2017 for those who did not have prior hospitalization; adding a surcharge for first-dollar Medigap coverage; and requiring Medicaid-level rebates for Medicare Part D.

Park said that he doesn't think the president will propose combining Medicare parts A and B in one payment structure, which Sen. Ron Wyden (D-Ore.) highlighted last month as one of the ways to improve Medicare's long-term solvency that has bipartisan support. He proposed using some of the savings from the combination of the two programs to establish a cap in catastrophic costs for Medicare beneficiaries.

“It's possible to do this in a way that will protect seniors from out-of-pocket costs on their Medicare while saving money in the program,” Wyden said in a March 13 hearing on the Senate budget bill.

But even if that idea has attracted bipartisan support, sources at both right and left-of-center think tanks, the healthcare policy group at law firm Drinker Biddle & Reath, and the Center for Medicare Advocacy said they don't think the president will propose this idea in his budget this week.

“You may see language that he's open to it, but I don't think it would be part of the proposal,” said Tanner of the Cato Institute.

Neither does Judith Stein, executive director for the Center for Medicare Advocacy. Nor is she certain doing so would be a good thing.

“The purpose of doing it is to save money,” Stein said. “The way to save money is to transfer costs away from Medicare and this way would be increasing out-of-pocket costs to most beneficiaries. That's because most beneficiaries do not need long-term hospital stays, so they don't reach a limit in an out-of-pocket cap. They would have to pay more in deductibles, copays and Medigap coverage.”

Instead, Stein urges a structure that would combine physician services, prescription drugs and nursing home coverage—in other words, blending parts A, B and D. For now, though, Stein said she needs more details to learn if a proposal to combine parts A and B would be better financially for most Medicare recipients.

“It's not yet to my knowledge at a point where it would be better for most beneficiaries,” Stein said. “The notion could be a good thing, but we need to know the details.”

Meanwhile, one area to watch closely in the budget is Medicaid, although sources have said they expect the administration to spare the program. For example, the administration could crack down on fraud and abuse in the program; apply competitive bidding to durable medical equipment similar to what exists in Medicare; or phase down Medicaid provider taxes that are paid to states to help them operate their Medicaid programs.

“What we're hearing is that they will scale back their Medicaid cuts,” a healthcare lobbyist said. “But is that zero? Or is it less than the last time?”

— with Rich Daly

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