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National and world

November 14, 2012

Liberal group outlines substantial Medicare cuts

WASHINGTON — Trying to prevent a raid on health care programs in upcoming budget talks, a think tank close to the White House on Wednesday released a plan for significant savings, mostly from Medicare.

Medicaid and the new health care law are largely spared from cuts in the blueprint from the liberal-leaning Center for American Progress. Instead, it targets Medicare service providers, from the pharmaceutical industry to hospitals and nursing homes. Higher-income Medicare recipients also would face increased monthly premiums for outpatient and prescription coverage.

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After taxes, health care costs are probably the thorniest issue facing policymakers looking for a way to avoid the so-called fiscal cliff, an economically toxic combination of tax increases and spending cuts looming Jan. 1 if compromise fails.

Rising health care costs are the most stubborn element of the nation’s long-term budget woes. At the same time, a recent report for the government estimated that the U.S. health care system squanders $750 billion a year, about 30 cents of every medical dollar.

The center’s proposal is notable because the organization serves as a kind of idea factory for President Barack Obama’s administration, akin to the conservative Heritage Foundation during Ronald Reagan’s presidency. The plan calls on Obama to draw the line against broader cuts and premium increases in budget talks with Republicans.

“This isn’t a floor. This is a ceiling,” said Neera Tanden, president of the center and formerly a senior White House official who worked on Obama’s health care overhaul. “The idea was to provide ideas in the debate that would not punish the middle class and low-income seniors.”

Congressional Republicans call the approach wishful thinking. They argue that all health care programs, including Medicaid for the poor and Obama’s law covering the uninsured, must be on the table. They say any plan that walls off big portions of government health care spending is simply not credible.

Tanden suggests Republicans recheck the election results. Voters, she said, knew that Republican Mitt Romney wanted to repeal the health care law, privatize Medicare and give Medicaid over to the states — and they chose Obama. “This election was not a coin toss,” she said. “We did not come out equal.”

The center’s plan rejects raising the Medicare eligibility age to 67, a concession that Obama quietly offered during failed budget negotiations last year. Instead it focuses on squeezing Medicare service providers, a strategy the plan’s authors say will make the entire health care system more efficient without risking quality.

Drugmakers would take the biggest hit, accounting for $160 billion, or about 40 percent of the proposed 10-year savings. Nearly all of that would come from requiring pharmaceutical companies to pay rebates on drugs provided to low-income Medicare beneficiaries.

Hospitals account for an additional $61 billion in cuts, or 16 percent of the total. Medical device manufacturers and insurance companies would be on the hook for about $20 billion apiece. Nursing homes are targeted for $16 billion in reductions.

The plan has two main proposals affecting Medicare beneficiaries.

It would revamp deductibles and cost-sharing in traditional Medicare so that upper middle-class and wealthy seniors pay at least their first $500 in medical costs in any given year, with exceptions for prevention and care for chronic disease. At the same time, it would protect beneficiaries with catastrophic costs by limiting total cost-sharing.

Although this proposal would not save the government any money, some seniors would pay more and others less.

Among seniors with Medigap insurance that covers medical costs from the first dollar, the well-to-do would have to pay the first $500 out of pocket.

But all Medicare beneficiaries would benefit from better protection against catastrophic costs. Overall, the idea behind the proposal is to discourage people from going to the doctor when they don’t have to.

Upper-income seniors would also be affected by another part of the plan. Currently, seniors making at least $85,000 for an individual and $170,000 for a couple pay higher monthly premiums for outpatient and prescription coverage. The plan would gradually increase the share of seniors facing higher premiums until it comprises the top 10 percent of beneficiaries. It would also boost those premiums by 15 percent.

The center is also proposing to repeal a payment formula for doctors that has failed to contain costs, replacing it with an approach that rewards primary and preventive care while squeezing specialists. Unless Congress acts, doctors will face a nearly 30 percent cut in Medicare payments on Jan. 1.

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Center for American Progress

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