Budgeting for Change — Obama's Down Payment on Health Care Reform (New Eng Jour Med)

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Budgeting for Change — Obama's Down Payment on Health Care Reform
John K. Iglehart

Outlining a bold set of initiatives that would increase the role of government well beyond the boundaries sketched out by the $787 billion economic stimulus package, President Barack Obama has proposed a 2010 budget supporting his commitment to expanding a range of domestic programs, redistributing wealth to middle- and lower-income families, and reforming the health care system. The spending plan is breathtaking in scope and is designed to replace conservative policies that have been embraced by Republican administrations going back to Ronald Reagan. Released on February 26, the $3.6 trillion proposal calls on Congress to commit to a down payment of $630 billion over the next decade to finance health care reform and work with the administration to design a reform package. The budget adds substantially to the $150 billion in health-related revenues from the economic stimulus package that Obama signed into law on February 17.

Released only 5 weeks after Obama assumed office, the 134-page pamphlet of budget proposals represents a preliminary offering and, as such, is sketchy on details — particularly about reform. But Obama notes that, whereas many past federal budgets have reflected continuity, his represents "a break from a troubled past," because "the problems we face demand that we begin charting a new path." The preliminary plan will be supplemented by a complete 2010 budget that the administration said it will unveil in April.

In addressing the vast medical economy, Obama has proposed a grand bargain to the American people and the disparate array of private interests engaged in health care. The administration has assured the populace, providers, and its political allies that it is serious about pursuing reform and expanding coverage. (And a new report issued by the Institute of Medicine1 may strengthen the administration's hand: it concludes that in areas with high rates of uninsurance, even people with coverage are more likely to have difficulty obtaining care and to be less satisfied with it.) But the budget proposal indicates that a reform package should be paid for in part by reductions, totaling $318 billion over 10 years, in Medicare and Medicaid payments to health plans, pharmaceutical companies, hospitals, and home health care providers. The other half of the down payment would be secured by increasing taxes for Americans in the highest tax brackets.

The budget also incorporates proposals for accelerating efforts to root out fraud and abuse, working to reduce hospital readmission rates, and setting the stage for reforming the way Medicare pays physicians, though it does not indicate how that would be accomplished. The largest slice of the $318 billion in savings would come from reductions — of approximately $175 billion over 10 years — in Medicare's payments to health plans. Under current law, the administration notes, Medicare "overpays" health plans with which it contracts through its managed care component (Medicare Advantage), reimbursing them an average of 14% more ($103 per member per month) than it does traditional fee-for-service providers for the care of comparable beneficiaries.

About 9.9 million Medicare beneficiaries (22%) are enrolled in Medicare Advantage plans, which are required to use most of the overpayments to provide enhanced benefits, most of which come in the form of reduced cost sharing for patients. As the budget document explains, "The administration believes it's time to stop this waste and will replace the current mechanism to establish payments with a competitive system in which payments would be based upon an average of plans' bids submitted. This would allow the market, not Medicare, to set the reimbursement limits." In response to this proposal, the stock prices of the largest Medicare Advantage contractors, including Aetna, Humana, and United Health Group, tumbled by double-digit amounts.

Source Information

Mr. Iglehart is a national correspondent for the Journal.

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http://content.nejm.org/cgi/content/full/NEJMp0901927?query=TOC

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