BREAKING: President’s $3 Trillion Deficit Trimming Plan Includes Medicare, Medicaid Cuts

On September 19, 2011, President Obama offered to the Joint Select Committee on Deficit Reduction a plan that would trim $3 trillion from the federal budget deficit over 10 years, starting in 2013. The plan uses a combination of cuts in federal spending as well as tax reform, including a new tax on individuals with incomes of over $1 million per year.

The plan would reduce Medicare spending by $248 billion and Medicaid and other federal health spending by $73 billion over 10 years.

Medicare changes

The proposed Medicare changes include —

        • reducing Medicare coverage of bad debts — Under current law, Medicare generally reimburses 70 percent of bad debts resulting from beneficiaries’ non-payment of deductibles and copayments after providers have made reasonable efforts to collect the unpaid amounts. The proposal would reduce bad debt payments to 25 percent for all eligible providers over three years starting in 2013; saving approximately $20 billion over 10 years.
        • aligning  graduate medical education payments with patient care costs— The proposal would reduce indirect medical education add-on payments to teaching hospitals by 10 percent beginning in 2013, saving approximately $9 billion over 10 years.
        • aligning payments to rural providers with the cost of care— The proposal would end an add-on payment for hospitals and physicians in low-population states, saving $2 billion over 10 years. The proposal also would reduce payments to critical access hospitals (CAH) from 101 percent to 100 percent of reasonable costs and eliminate the CAH designation for those that are fewer than 10 miles from the nearest hospital, saving $6 billion over 10 years.
        • encouraging efficient post-acute care— The proposal includes a variety of changes in the reimbursement of post-acute care, with a proposed savings of $42 billion over 10 years. The proposal would adjust payment updates for skilled nursing facilities (SNFs), long-term care hospitals (LTCHs), inpatient rehabilitation facilities (IRFs) and home health agencies from 2014 through 2021; equalize payments for certain conditions commonly treated in IRFs and SNFs; encourage appropriate use of inpatient rehabilitation hospitals; and adjust SNF payments to reduce hospital re-admissions.
        • aligning Medicare drug payment policies with Medicaid policies for low-income beneficiaries — The proposal would allow Medicare to benefit from the same rebates that Medicaid receives for brand name and generic drugs provided to beneficiaries who receive the Medicare Low-Income Subsidy beginning in 2013, for a savings of $135 billion over 10 years.
        • cutting waste, fraud, and abuse in Medicare— The proposal would recover erroneous payments made to insurers participating in Medicare Advantage; reduce improper payments in Medicare; dedicate penalties for failure to use electronic health records toward deficit reduction; update Medicare payments to more appropriately account for utilization of advanced imaging; and require prior authorization for advanced imaging.
        • revising premiums and deductibles — The plan would increase income-related premiums under Medicare Parts B and D; modify Part B deductible for new beneficiaries; introduce home health co-payments for new beneficiaries; and introduce a Part B premium surcharge for new beneficiaries that purchase near first-dollar Medigap coverage.

Medicaid changes

The proposal includes a variety of changes to the Medicaid program that would save approximately $66 billion over 10 years. The proposals include —

  • reducing the Medicaid provider tax threshold beginning in 2015;
  • applying a single blended matching rate to Medicaid and the Children’s Health Insurance Program (CHIP) starting in 2017;
  • limiting Medicaid reimbursement of durable medical equipment (DME) based on Medicare rates;
  • strengthening third-party liability for Medicaid beneficiary claims;
  • re-basing Medicaid disproportionate share hospital (DSH) allotments in 2021;
  • amending modified adjusted gross income (MAGI) for health insurance assistance programs to include Social Security benefits;
  • reducing waste, fraud and abuse in the Medicaid program