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Medicare: Budget Proposes More Than $470 Billion in Savings

By Kerry Young, CQ Roll Call

February 9, 2016 -- The final budget blueprint from President Barack Obama proposes ways to shave more than $470 billion over a decade from Medicare spending, slowing the pace of growth for expenses for the federal program for the elderly and disabled.

If Congress were to approve the cuts, the estimated annual cost of the Medicare program would still hit $1 trillion by fiscal 2026, up from an estimated $598 billion in fiscal 2017. The aging of the baby boomers will lead to an expansion of enrollment in Medicare, already the nation's largest single purchaser of health care. 

Seeking to counter the natural growth in costs for the program, the White House in its fiscal 2017 budget proposed changes in rules for paying doctors and other providers of health care that the administration estimates would save $421.4 billion over a decade. 

Increases in contributions that people enrolled in Medicare make to the cost of their medical care would generate another $56.4 billion over a decade. Asking wealthier people to contribute more to the cost of their health care and drug purchases would account for about $41.2 billion of the expected savings.

The final Obama budget proposal for Medicare may generate legislative interest that extends beyond the end of this administration. Lawmakers in both parties have used Medicare savings to offset both the cost of recent budget deals and to pay for spending increases for the program. The blessing of a Democratic president may make it easier for members of both parties to endorse reductions in Medicare payments.

Some of the biggest proposed Medicare savings in the fiscal 2017 budget proposal would be taken from the pharmaceutical industry. About $121.3 billion would be saved by lowering the payments for drugs purchased for people on Medicare who are living in or near poverty, to match Medicaid payments. Another $9.6 billion would be saved over a decade by encouraging people on Medicare who qualify for low-income assistance to use more generic drugs.

The budget proposal also calls for allowing Medicare to negotiate lower prices for expensive biologic and prescription drugs. No savings estimate was included for this proposal, indicating that many details would need to be worked out for such a change in approach. 

Another target for savings are the insurer-run Medicare Advantage plans, with the administration saying that changes to "increase the efficiency" of the program could save $77.2 billion over a decade.

The Medicare Payment Advisory Commission has looked at several avenues for reducing Medicare Advantage expenses, with an aim of maintaining the quality of health services provided to elderly and disabled people while cutting costs.

The proposal for savings through the Medicare Advantage program, though, drew the ire of Marilyn Tavenner, who last year resigned as administrator of the Centers for Medicare and Medicaid Services (CMS). Tavenner now leads the lobbying group America's Health Insurance Plans.

"Millions of seniors depend on Medicare Advantage, yet, the Administration's latest budget proposal would directly undermine the care and programs that are proven to work and improve beneficiaries' health," she said in a statement. "This is not the time to cut Medicare Advantage. It's the time to protect and strengthen it."

The industry of providers that care for people after hospital stays for serious illnesses and surgeries is another target for deep savings in the budget proposal. Curbing the growth in payments could generate $86.6 billion in savings over a decade. The White House also estimates that $9.9 billion could be saved over a decade by creating a new bundled payment for care provided to people on Medicare after hospital stays, a move that would end the current patchwork of separate payments for different services.

At least one White House's proposal would add to Medicare's expenses. The budget calls for eliminating the coinsurance that beneficiaries have been charged for removal of polyps during colonoscopies, a $2.43 billion new expense over a decade.

The White House also proposed cost savings for the state-federal Medicaid program for those living in or near poverty. The proposals include giving states a new tool to reduce spending on high-cost drugs through a negotiating pool. The improved bargaining power would save $5.8 billion over a decade, the budget request projected.

The budget also calls for allowing CMS to require insurance plans that cover people in Medicaid and the Children's Health Insurance Program to pay out at least 85 percent of premium revenues for medical costs through a so-called medical loss ratio requirement. This would produce $23.5 billion in savings over a decade.

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