Health Care Savings in Obama’s Budget

(A version of this Health Alert was published by The Hill.)index1

In a remarkable move breaching a four-decade precedent and characterized by many as a snub, the Republican chairmen of the House and Senate Budget Committees declined to invite the director of the Office of Management and Budget to present President Obama’s 2017 budget to their committees.

Utterly ignoring the president’s proposed budget is short-sighted, especially since congressional Republicans are disunited on fiscal issues. In January the Congressional Budget Office (CBO) updated its estimate of the cumulative federal deficit for the next 10 years to $8.5 trillion, versus just $7 billion last August.

The reason for the increase is that Republicans, who control both chambers, have won some tax cuts but no spending cuts. Obama’s latest budget offers the opportunity to remedy this, if only to a small degree and only by being very selective.

To be sure, most of the budget is awful. For health care the president offers huge spending increases, tax hikes (disguised as higher Medicare Part B premiums), and spending cuts that would harm innovation and restrict patient choice. This last category includes government-dictated prices for prescription drugs (which would drive capital out of pharmaceutical research and development) and imposition of Obamacare’s Medical Loss Ratio (MLR) regulations on Medicaid managed-care plans. MLR regulations have turned private health insurance into a regulated utility: insurers are guaranteed a profit for offering government-sanctioned plans, which has resulted in double-digit premium hikes. Imposing the same regulations on Medicaid managed-care plans would likely have the same effect.

Nevertheless, good cherry-picking by congressional leaders willing to cut spending on Obama’s terms could result in marginal improvements to federal health spending and finally allow the Republican majority to demonstrate it can govern with fiscal prudence. Two stand out:

Medicare Advantage competitive bidding. Medicare Advantage, under which private insurers offer Medicare benefits outside the Soviet-style fixed prices of old-fashioned Medicare, is a winner. Almost 20 million seniors will enroll in Medicare Advantage plans in 2017.  Currently, plans bid against a government benchmark to win the opportunity to compete for Medicare beneficiaries. For the first time, the president proposes that plans bid against each other. Along with lesser reforms, this would save $77 billion over 10 years.

Medicare bad debt. The president’s budget proposes $33 billion in savings by reducing Medicare’s coverage of bad debts to hospitals and other facilities. Currently, the federal government pays 65 percent of facilities’ bad debts, which the president would cut to 25 percent. This would reduce the burden on taxpayers and force hospitals to be more transparent in communicating prices and payment obligations to Medicare beneficiaries.

Cost-cutting proposals from previous budgets are absent from the current one, although there is bipartisan support for at least two. Congress should resurrect them in its own budget proposal:

Site-neutral Medicare payments. Many services cost significantly less when provided in an outpatient setting rather than in a hospital. However, hospitals which own outpatient facilities are expert at claiming higher hospital-based charges for off-campus services. In last October’s budget deal Congress and the president closed this loophole for newly built facilities, saving $10 billion over 10 years. However, Obama has previously proposed similar changes for incumbent facilities, which would save $30 billion over 10 years.

Medicare supplemental (Medigap) insurance. Most Medigap plans pay beneficiaries’ deductibles and co-pays, making beneficiaries insensitive to the total cost of their Medicare services. Discouraging beneficiaries from buying such plans would make them more cost-conscious. Last April Congress passed a Medicare bill (which the president signed) restricting first-dollar coverage for Medigap plans. However, that reform does not take effect until 2020, which means it will save less than $1 billion, according to the CBO. Last year the president proposed to implement this reform in 2018, which would have added $3 billion to the savings.

These reforms alone are not going to put Medicare on a sound fiscal footing. Nevertheless, they are reasonable first steps the Republican majority in Congress can take to demonstrate it can govern responsibly with spending cuts that will win the president’s signature.

Comments (14)

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  1. The Big Ham says:

    you think anyone realizes that Medicare Supplements will not exist in there present form after 1/1/2020?

    Its illegal to design and sell a product in the land of the Free!

    Subtitle A—Medicare Beneficiary Reforms
    Section 1882 of the Social Security Act (42 U.S.C. 1395ss)is amended by adding at the end the following new subsection:‘‘(z) LIMITATION ON CERTAIN MEDIGAP POLICIES FOR NEWLY ELIGIBLE MEDICARE BENEFICIARIES.—
    ‘‘(1) IN GENERAL.—Notwithstanding any other provision of this section, on or after January 1, 2020, a medicare supplemental policy that provides coverage of the part B deductible, including any such policy (or rider to such a policy) issued under a waiver granted under subsection (p)(6), may not be sold or issued to a newly eligible Medicare beneficiary.

    • dennis byron says:

      You are right. The way I like to express it is “Only in the United States today can the government force people under 65 to buy a product they don’t want and forbid people over 65 from buying a product they do want.”

  2. Ron Greiner says:

    So Medicare Advantage is a so-called winner. Here in Tampa Bay MA plans advertise they will pay a couple on Medicare $180 a month in cash if they choose them for their coverage. That’s what I call a competitive market.

    Tampa Teachers’ children are uninsured because it costs them $1,168 a month to add 2 children onto the School’s PPO, an abusive amount that these broke teachers cannot afford. The children must get their coverage on the marketplace with after tax dollars and are disqualified for tax credits. I didn’t see one article this past Open Enrollment about this problem called the Family Glitch in Obamacare. Only Hillary has the ability to get the Family Glitch in the Nation’s media. I saw a story today in Boston about how Hillary is going to fix the family glitch when she is President. Another name for a controlled media is PROPAGANDA.

    Only in America could 2 children cost $1,168 a month for health insurance and a couple over 65-years-old get paid $180 a month to have health insurance. What a crazy country. No wonder people stopped having children in America. Proud to be an American, where at least I know I’m… More central planning please…

    • dennis byron says:

      There is no such thing as a “couple on Medicare” so not sure what the ads say but it sounds like a zero-premium public Part C health plan that rebates part of the Part B premium. But that does not mean the policy is free to the couple on Medicare; on average the couple pre-paid a couple of hundred thousand dollars for that public Part C health plan policy over the last 50 years in income and payroll taxes

      • Ron Greiner says:

        Dennis, you write, “There is no such thing as a “couple on Medicare” – then further assert, “But that does not mean the policy is free to the couple on Medicare; on average the couple pre-paid”

        Thanks for your big brain analysis Dennis.

    • Gitmoray says:

      I totally understand your comment on a couple receiving $180/mth on their Medicare Advantage. That is simply a Part B rebate plan that rebates them $90 each if they both sign up. Great for healhty people, but the insurance company quickly makes it up on higher co-pays if the members are not so healthy. Great competitive ploy by Med Advantage companies to attract the healthy ones in the pool.

      On your $1,168/mth comment for adding two kids to the teacher’s School District health plan, I am calling bullsheet on that. My guess is that $1,168/year is more like it. My wife is a School County employee in a Florida district more expensive than Tampa, and our two kids add about $1,500/yr to her total. If the teacher is truly broke, he/she can get the kids added to Florida Kidcare for way less than that. Sorry…B.S.

      • Ron Greiner says:

        Gitmoray, so you can understand the Medicare cost but you think I’m wrong on the employer-based cost of health insurance. Sorry, I’m right, as usual. Florida KidPloy, or Kidkare costs $299 a month per child if the income is 200% of poverty. So that’s $900 a month for a 3 children.

        Here is the proof that 2 children cost $583.86 X 2 = $1,167.72 a month for a $3,000 out-of-pocket Blue Cross PPO (Pasco County School District)

        Why would you shoot your mouth off and make it so easy to show how wrong you are? I don’t care if your wife is a teacher. That didn’t make you any smarter did it?

    • Gitmoray says:

      By the way, Ron…Double B.S. no Medicare Advantage company is allowed to pay people $90 in cash. The $90/mth is sent back to Social Security by the company, and then Social Security credits them the 90 against their Medicare Part B premium.

      • Ron Greiner says:

        Gitmoray, so if you credit the Medicare money just right then everything is OK for you Socialists.

        Did I tell you the Pasco School District is selling Life Insurance to these teachers that they lose if they get cancer and become too sick to work? Those employer-based benefits really suck – don’t they?

        Why would you prefer that your wife’s employer choose the health insurance on your children instead of the parents?

        What Florida School District does your wife work?

  3. Wanda J. Jones says:


    There are inevitable glitches whenever government controls a large social sector–they can’t help themselves from interfering in personal and business decisions, thus skewing costs, pricing, relationships, staffing and even choices of provider, once sacrosanct.
    All policy thinkers should weigh in on the public’s knee jerk solution of single payer. “I know, let’s give our present flawed system to the very perpetrator that caused it.”

    Support Paul Ryan’s project of designing a new Republican solution.

  4. Bob Hertz says:

    Great post, Ron.

    Our Congrress shovels money to seniors, because they are such important voters, but when it comes to working age persons, nickels are like manhole covers.

    Hilary not only mentions the family glitch, she also has a proposal to help those with modest incomes who are trapped in high deductible ACA policies.

    Funny how none of the ‘family values’ Republicans have even acknowleged the existence of the family glitch.

  5. Jerome Bigge says:

    The repeal of prescription laws, one of the greatest mistakes made by the FDR administration, would have done more good and saved a minimum of one hundred billion dollars a year. Obamacare on the other hand has added considerably to our medical costs due to its faulty design that encourages people not to try to take care of their health due to its massive deductibles.

    • Thank you. To which “prescription laws” do you refer? Prescribing itself was not regulated by FDA until 1951 (The Durham-Humphrey Amendment) signed by President Truman. Both Durham and Humphrey were pharmacists in Congress. So, it is interesting that they led the federalization of prescribing, which had previously been within the scope of the professions.

      I have considered the idea of advocating repeal of that amendment, and allowing state boards of medicine and pharmacy to figure this out. However, I think that might be a bridge too far with drugs like OxyContin and whatnot. Maybe keep the Schedule II controlled drugs under prescription by FDA and allow states to decide other drugs?