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Obama's FY 2014 Budget on Medicare


Dan Barrett
April 9, 2013

In part two of three, I take a look at the predictions of the President's FY 2014 Budget in how it might affect Medicare. Note: Figures are in ten-year windows (not the usual five-year increments under the BillTally project).

Current status: Via the Centers on Medicare and Medicaid Services (CMS), health care costs for disabled and senior Americans will continue to rise, so much so that the program could be insolvent by 2027. From 3.7 percent of GDP in 2011, the Medicare Hospital Insurance and Supplementary Medical Insurance Trust Funds will continue to grow in obligations to approximately 6.7 percent of GDP by 2086 (73 years from now). We're talking trillions of dollars in projected obligations that traditional funding methods, a mix of payroll taxes and regular government spending.

Possibilities for FY 2014:

  • Combine Medicare Parts A and B (Unknown). By putting many Medicare services under one category, beneficiaries would apply to a single entity, creating something of a unified deductible, and potentially decrease administrative costs. However, there does not seem to be hard figures and, like other reforms, transitioning to a new system might erase potential savings. Also, Parts A and B are funded in different ways, with A receiving payroll taxes whereas B is mostly funded by Federal general tax revenue. Hopefully the Administration will provide details on merging A and B, if such a proposal is included in the Budget.
  • "Rebates" from Drug Companies ($100 billion). In the previous Budget, President Obama called for drug rebates from companies, which would require makers to give a portion of their sales to the government. Some would argue this is a new tax on businesses, the rebates have been classified as "offsetting receipts" and so count as decreases in public spending.
  • Cut Hospital Payments ($23.6 billion). The government will cut hospital reimbursements for uncollected "bad debt" from patients. The intention is to make hospitals be more aggressive in collected unpaid bills from patients instead of relying on government compensation. While the Fiscal Times credited the measure as a $36 billion ten-year savings, the Congressional Budget Office scored the payment reduction as a $23.6 billion cut.
  • Encourage Efficient Care (Unknown). Depending on this proposal’s intention, the government aims to have fewer hospital readmissions (patients who are re-emitted soon after they are released). However, this measure is already in progress via the Affordable Care Act.
  • More Means-Testing ($35 billion). Many higher-income patients would be required to pay higher premiums and deductibles for the same medical care as average or below-average income patients.
  • The FY 2013 Budget continued the costly "doc-fix" measure but also made cuts to graduate medical education credits, quality care requirements for rural hospitals, and changed a number of specialized medical procedures that would have resulted in savings, totaling a potential $302.4 billion.

Bottom line: Even if all of the savings realized, the structural problems of Medicare outweigh many proposals, even ambitious ones. Though streamlining payment processes and taking more money away from drug companies could help to offset some current deficits, taxpayers need trillion-dollar solutions to the economy’s biggest single expense program. On the other hand, by requiring drug companies to pay more to the government, prescription prices may increase.


 

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