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Obama's FY 2014 Budget on Medicaid

Dan Barrett
April 9, 2013

In this final post, I delve into what President Obama's FY 2014 Budget might do to Medicaid funding. Note: Figures are in ten-year windows (not the usual five-year increments under the BillTally project).

Program update: Using Congressional Budget Office data, the Kaiser Commission on Medicaid and the Uninsured projects an average eight percent spending increase for each of the next ten years, which is mostly due to the program’s expansion under the Affordable Care Act. Like Medicare, Medicaid costs are also expected to up-tick with many recipients getting older and requiring more costly care more often. So, in the short run, Medicaid and CHIP (the children's version of Medicaid) spending will increase by $638 billion before FY 2023.

What’s projected:

  • Eliminate Pay-For-Delay Drug Agreements ($753 million): Currently, drug companies are incentivized to pay generic drug makers to not reproduce their patented drugs for years at a time so that the company who created the drug gets compensated for research, development, and marketing costs. Possibly resulting in savings to Medicaid and even Medicare, President Obama would cut these agreements.
  • Expand Program Integrity (Unknown): In late 2012, the Government Accountability Office analyzed options for eliminating duplicative programs and improving efficiency under the Centers for Medicare and Medicaid Services (CMS). GAO found that an estimated $21.9 billion of Medicaid in FY 2011 expenditures were improper. Though the government should be fighting waste, fraud, and abuse, it is unclear how much more spending would be allocated to enhance integrity programs that are already in effect.
  • Empower the Independent Payment Advisory Board ($3.1 billion): Since its creation in 2010, IPAB has not yet made recommendations to change health care spending but CMS is tasked with starting IPAB’s work this year. In the past, the Congressional Budget Office has cited that the Board could save tax dollars but also said that the savings projections are "extremely" uncertain but maintains that the Board would save $3.1 billion over ten years.
  • The FY 2013 Budget called for the eventual reevaluation of payments made to Disproportionate Share Hospitals and a phased down provider tax credit threshold, among other smaller provisions. All told, these other measures could total $51.6 billion over ten years.

What this means: Given the Affordable Care Act’s broad expansion of Medicaid, it is difficult to say whether these reforms would mean real savings for taxpayers or if they could even stem the tide of high costs that are likely to occur. The Fiscal Times credited these three measures with a $25 billion savings but they are uncertain, conditional, and perhaps overly optimistic. Just as with Medicare, the full amount of savings do not make up for the projected growth in outlays and more fundamental reform (or revenue increases) are required.


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