FLash Update

President Obama announces budget framework with more than $1.4 trillion in healthcare cuts

During an April 13 speech, President Obama announced his plan to reduce the deficit by $4 trillion in 12 years or less that includes $480 billion in Medicare and Medicaid cuts by 2023 and at least an additional $1 trillion over the subsequent decade. Obama unveiled his budget framework in response to the budget proposal that House Budget Committee Chairman Paul Ryan (R-WI) released last week that would shave $6 trillion in spending cuts over 10 years, a large portion of which would be achieved through cuts to Medicare and Medicaid.

Outlined in Obama’s framework are the following healthcare provisions:

  • Changes to Medicaid: Obama proposes to replace the current federal matching formula for Medicaid and the Children's Health Insurance Program (CHIP) with a single matching rate for all program spending that would be linked to states' efficiency. The proposal would also automatically increase the matching rate if states' costs rise due to increased enrollment during a recession. In addition, the president pledges to examine recommendations from the National Governors Association and to support reforms "to incentivize more efficient, higher quality care for high-cost beneficiaries," including those that target dual-eligibles.
  • Independent Payment Advisory Board (IPAB): The proposal would set a new lower target of Medicare growth per beneficiary to GDP per capita plus 0.5 percent (from GDP per capita plus 1 percent in the Affordable Care Act). Consistent with the Affordable Care Act, when spending growth exceeds this, IPAB must recommend to Congress policies to reduce the rate of growth to meet that target which would go into effect unless Congress enacted policies that achieve equivalent savings. The proposal would also allow IPAB to promote "value-based benefit designs" and grant it additional enforcement mechanisms such as automatic sequester.
  • Partnership for Patients: The president counts among his reforms that will reduce spending the "Partnership for Patients" initiative announced yesterday. Through the public-private partnership that aims to reduce readmissions and occurrences of adverse events, Obama expects to save $50 billion in Medicare and billions of more in Medicaid over the next 10 years.
  • Medicare and Medicaid fraud and abuse: The proposal would limit states' use of provider taxes to receive federal matching Medicaid funds and is billed in the proposal as a way to prevent states from being able to lower their own spending while not providing additional health services to Medicaid beneficiaries. Other program integrity provisions proposed include recovering "erroneous" payments from Medicare Advantage and establishing upper limits on Medicaid payments for durable medical equipment.
  • Prescription drug spending: The president proposes enacting recommendations from the bipartisan Fiscal Commission that would reduce prescription drug spending and also speed availability of generic biologics, prohibit brand-name companies from entering into "pay for delay" agreements with generic companies and implement Medicaid management of high-prescribers users of prescription drugs.

The president also proposes instituting across-the-board spending reductions if, by 2014, the projected ratio of debt-to-GDP is declining toward the end of the decade, but would exclude Medicare benefits, as well as Social Security and low-income programs.

Additional spending reductions are included in the president's budget framework, including those related to taxes and defense spending and can be found in "The President's Framework for Shared Prosperity and Shared Fiscal Responsibility," released by the White House today.

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