President Looks to Medicare for Budget Deficit Savings in State of the Union Address

The president identified the rising cost of health care very early on in his February 12, 2013 State of the Union speech as “the biggest driver of long-term debt.” Although he characterized the state of the union as improving, noting that businesses created six million new jobs, he said that more needs to be done with respect to government spending. He singled out Medicare as an area where significant savings could be achieved.

Medicare Proposals

President Obama stated that modest changes to Medicare are necessary to help address the problem of high health care costs. While not giving specifics, the president identified three ways Medicare cost could be reduced to decrease health care spending and shrink the deficit.

The most significant method of reducing Medicare payments was changing the reimbursement system from one that pays for services to one that pays for quality of care. The president said that the government should not pay for “the number of tests ordered or days spent in the hospital.” Instead, Medicare payments “should be based on the quality of care that our seniors receive.” CMS is currently operating a number of demonstration projects testing different ways to pay for quality of care as opposed to reimbursing for specific services.

The president said he will also ask more from the wealthiest seniors, presumably by increasing or indexing Medicare Part B premiums, although no specifics were mentioned. Finally, he said he would introduce reforms to reduce taxpayer subsidies to prescription drug companies.

Savings

With respect to Medicare, the president is “prepared to enact reforms that will achieve the same amount of health care savings by the beginning of the next decade as the reforms proposed by the bipartisan Simpson-Bowles commission.” At the end of 2010, the Simpson-Bowles commission issued 18 recommendations to reform the health care system estimating savings of $400 billion over a ten year period. Notably, the president did not commit to adopting those specific recommendations.

Republican Response

Sen. Marco Rubio (R-Fla.), in the official Republican response to the State of the Union, agreed with the president that reforming Medicare is a key factor in reducing government deficits. Rubio said, “the biggest obstacle to balancing our budget are programs where spending is already locked in.” He stated, “Republicans have offered a details and credible plan that helps save Medicare without hurting today’s retirees,” referring to the plan offered by Representative Paul Ryan (R- Wis.). Ryan’s plan would allow Medicare beneficiaries the choice to remain in traditional Medicare or choose to enroll in an insurance plan offered by private insurers, with the government picking up all or part of the premium. The proposal would not make any changes to Medicare for existing or soon-to-enroll beneficiaries. “I would never support any changes to Medicare that would hurt seniors,” said Rubio.