Obama Deficit Plan Has Medicare Provider, Beneficiary Cuts

September 19, 2011 — A deficit-reduction plan unveiled by President Barack Obama today would wring $248 billion in savings from Medicare over 10 years, in part by cutting special payments to rural physicians and hospitals, requiring prior authorization for expensive imaging services, and reducing support for teaching hospitals.

Another $72 billion in savings would come from Medicaid and other healthcare programs.

In all, the president's plan would trim the deficit by more than $3 trillion through a mix of spending cuts and tax hikes that follow the so-called Buffet Rule (suggested by billionaire Warren Buffett): People making more than $1 million should not have lower tax rates than the middle class. Obama's proposed surgery on the deficit comes on top of roughly $1 trillion excised by the federal debt-ceiling deal in August.

The new proposal will become fodder for Congress and its newly appointed Joint Select Committee on Deficit Reduction, also known as the "super committee." That bipartisan group was tasked by the debt-ceiling legislation to find $1.5 trillion in additional savings that Congress must enact by December 23. Given that Congressional Republicans, who control the House and have enough votes in the Senate to filibuster, have announced stony opposition to tax increases, the Obama plan faces a tough, if not impossible, going.

President Barack Obama called for new deficit cuts of $3.0 trillion. Nicholas KAMM/AFP/Getty Images

However, the president has signaled he will play hardball on the tax issue. He warned today that he would veto any deficit-reduction package that reduces Medicare benefits for seniors but fails to "raise serious revenues" from the wealthiest Americans and biggest corporations.

"We are not going to have a one-sided deal that hurts the folks who are most vulnerable," Obama said today.

Program Cuts Called Modest

The Obama administration characterizes the $320 billion in cuts to Medicare and Medicaid as both modest and necessary for the long-term viability of the programs. Physicians would feel their nick in a number of ways:

• Medicare traditionally has paid physicians and hospitals in underserved rural areas a little extra, but these payments "may be greater than necessary to ensure continued access to care," according to the Obama administration. It therefore wants to end an "add-on payment" for physicians and hospitals in certain low-population states in 2013.


• The dramatic growth of Medicare spending for imaging services has led some experts to question whether such scans are always necessary or reasonably priced. Accordingly, the Obama administration would require prior authorization for the most expensive imaging services, beginning in 2013, along with lower reimbursement for them.


• As part of an initiative to reduce improper Medicare payments, the administration would penalize providers who fail to update their enrollment information.


• Residency training programs could experience pain under a proposal to reduce Medicare subsidies for teaching hospitals, saving $9 billion over 10 years. The subsidies exist because teaching hospitals, by their very nature, are less efficient, and are therefore costlier to operate. However, the administration believes current subsidy payments exceed the extra costs that these hospitals incur by training residents.

The quest for Medicaid savings would target high prescribers. The government wants to require states to track Medicaid drug claims for signs of waste, fraud, and abuse, and prevent it from happening in the first place.

Deductibles, Premiums Would Increase for Some Beneficiaries

Medicare belt-tightening in the president's proposal affects beneficiaries, as well as providers:

• Beneficiaries who are already paying higher Medicare Part B and Part D premiums on account of their high income would pay 15% more beginning in 2017.


• The annual deductible for Medicare Part B would increase by $25 in 2017, 2019, and 2021 for new beneficiaries. The idea here is to motivate seniors to seek "high-value healthcare services"; that is, good care at a lower price.


• Also in 2017, beneficiaries would begin to owe a $100 copayment for home-health episodes with 5 or more visits that are not preceded by a hospital stay.


• The government has determined that seniors who purchase MediGap policies to pay for costs not covered by Medicare — copays, for example — tend to use more healthcare services, driving up Medicare spending. The administration proposes to add a hefty surcharge to Medicare Part B premiums in 2017 whenever beneficiaries buy a MediGap policy that subjects them to little if any cost-sharing. Presumably, the surcharge would discourage seniors from obtaining such generous MediGap policies.

To apply the brakes even more to Medicare spending, Obama today reiterated an earlier proposal to strengthen a creation of the new healthcare reform law, the Independent Payment Advisory Board (IPAB). The job of the IPAB is to counsel Congress on how to slow down Medicare spending if it exceeds growth-rate targets set by the law. If Congress does not implement what the IPAB recommends, it must come up with its own cost-cutting plan, or else let the Department of Health and Human Services devise one.

In 2018, the IPAB target is growth in the gross domestic product plus 1%. Obama wants to make it gross domestic product growth plus 0.5%.

The American Medical Association and other medical societies view the IPAB with hostility because it represents an additional threat to physician revenue. Many Congressional Republicans have advocated repealing the IPAB, saying that it will ration healthcare for seniors, even though the Affordable Care Act prohibits the board from increasing beneficiary premiums or cost-sharing, or restricting benefits.

Deficit-Reduction Math Factors in Doc Fix

The American Medical Association quickly identified at least one thing it liked about the administration's deficit-reduction plan: Obama's numbers assume passage of a "doc fix" to the Medicare reimbursement crisis created by the program's sustainable growth rate formula for setting physician pay. That formula will trigger a 29.5% reduction in Medicare rates on January 1 unless Congress acts to avert it.

Current federal budget projections assume this massive reduction will occur. Repealing the sustainable growth rate and freezing Medicare rates for 10 years would cost $300 billion, which is an amount that must be factored into deficit-reduction math, the Obama administration said. "Failure to do so simply masks the worsening long-run deficit."

In a press release today, American Medical Association President Peter Carmel, MD, commended the president for recognizing that deficit reduction must take sustainable growth rate repeal into account.