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President's Spending Plan Spares Health Care Entitlements, But They'd See Big Changes

By John Reichard, CQ HealthBeat Editor

February 13, 2012 -- The Obama administration's fiscal 2013 budget proposal seemingly charts a far different path for Medicare and Medicaid than many Republican plans, as it would preserve both as entitlement programs.

Many beneficiaries would nonetheless see big changes, with wealthier Americans paying higher costs, for Medicare in particular.

And while the budget, released last week, is written to preserve the health care law (PL 111-148, PL 111-152) and its guaranteed subsidies to buy coverage for uninsured Americans at the middle or modest end of the income scale, it shows that the administration is scrambling—perhaps futilely—to implement the overhaul in a way that will fulfill the robust vision its framers had for covering the uninsured and preventing chronic disease.

The proposal calls for more than $200 billion in Medicare cuts to hospitals, skilled nursing facilities and other "post-acute providers," and pharmaceutical companies. If post-acute provider lobbies are correct, the cuts would mean a reduction of staffing and deteriorating patient care in nursing facilities.

Medicare would change in other ways as well. Starting in 2017, beneficiaries with higher incomes would pay sharply higher Part B and Part D monthly premiums than other beneficiaries.

The current income thresholds for paying those premiums would drop from the current figure of $85,000 in annual income to $80,000. The higher premiums they pay would be raised 15 percent. And the income thresholds would not be adjusted for inflation until fully one-quarter of the Medicare population was paying the higher premiums.

As for Medicaid, states would be less able to pump up federal matching payments by raising provider taxes.

The budget proposal also calls for "a single blended matching rate for Medicaid and Children's Health Insurance Program spending to replace the current complicated patchwork of matching formulas starting in 2017." Critics of this approach say having a single rate would make it much easier for Congress to dial down how much the federal government sends to the states for Medicaid over time. And Sen. John D. Rockefeller, IV, D-W.Va., said the approach would lead to an end of the Children's Health Insurance Program.

The health care law would avoid a huge hit, but the proposal shows that $900 million of the $1.2 billion allotted in fiscal 2013 for the Prevention and Public Health Fund created under the law would go to the Centers for Disease Control and Prevention. Over a 10-year period, the Obama budget would reduce the $15 billion fund by $4.5 billion. The public heath community won passage of the fund as a way to foster tailored, grass-roots programs to prevent conditions including tobacco-related illness, diabetes and obesity.

The administration also is asking for $864 million to help the Centers for Medicare and Medicare Services create a federal insurance exchange to offer insurance options in states that do not create their own exchanges under the health care law.

What happens if Congress doesn't provide the $864 million?

Administration officials say resolutely that starting Jan. 1, 2014, all state residents will have an exchange to go to. But they are vague about how that will happen. One official said that failure to get the funds would mean the administration could do less in the way of "eligibility, enrollment and outreach" for the federal exchange.

The cuts and premium increases included in the proposal in earlier times would be viewed as politically unlikely given the lobbying and campaign funding might of the drug industry and claims that post-acute care would deteriorate in quality. But the Medicare and Medicaid changes are essentially the same as in a deficit reduction proposal President Obama floated last fall. And with the imperative to reduce deficit spending, changes once thought unthinkable become more of a possibility.

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