President Obama's Budget Proposal Includes Broad Changes To Health Care System

Main Category: Medicare / Medicaid / SCHIP
Also Included In: Health Insurance / Medical Insurance;  Public Health
Article Date: 02 Mar 2009 - 0:00 PDT

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The budget proposal that President Obama released on Thursday includes a number of broad reforms to the health care system as part of his effort to expand health insurance to all U.S. residents, the New York Times reports (Pear, New York Times, 2/27). The $3.55 trillion fiscal year 2010 proposal includes $2 trillion in mandatory spending, which includes finds for Medicare and Medicaid (Calmes, New York Times, 2/27). Under the proposal, mandatory spending for Medicare would total $453 billion, and mandatory spending for Medicaid would total $290 billion (Washington Post graphic [1], 2/27).

The proposal also includes $634 billion for a reserve fund to help finance and expand health insurance to all residents (Taylor, AP/Kansas City Star, 2/26). The budget would finance half of the reserve fund with increased revenue from tax changes and half with reduced spending in health care programs (Levey, Los Angeles Times, 2/27).

According to the Christian Science Monitor, the reserve fund "would represent a huge change in national direction, as it implies that the U.S. will move towards some sort of universal health care system" (Grier, Christian Science Monitor, 2/27). The announcement of the reserve fund likely will prompt a "battle" over "how to finance Mr. Obama's national health insurance plan," which "will significantly expand the cost of government," the Washington Times reports (Lambro, Washington Times, 2/27). The tax changes "will set off a battle in Congress, where Republicans are bristling at the notion of allowing taxes to rise during a recession," The Hill reports (Alarkon, The Hill, 2/26). The proposal also would decrease spending for Medicare and Medicaid to help finance the reserve fund, and those reductions are "sure to incite battles with doctors, hospitals, health insurance companies and drug manufacturers," according to the AP/Detroit Free Press (Crutsinger, AP/Detroit Free Press, 2/26).

Obama plans to release a detailed proposal in April, but the plan likely will not include additional details on health care reform, as he hopes to draft legislation with lawmakers, The Hill reports (Young, The Hill, 2/26). Obama said, "With this budget, we are making a historic commitment to comprehensive health care reform. It's a step that will not only make families healthier and companies more competitive, but over the long term, it will also help us bring down our deficit" (Sanchez, CongressDaily, 2/26).

Health Care Industry Changes
The proposal includes several provisions that would reduce payments to the health care industry. The proposal would revise how Medicare pays health insurers that operate Medicare Advantage plans and implement a competitive bidding process that would pay companies based on the weighted average of bids in different geographic areas (Fuhrmans, Wall Street Journal, 2/26).

In addition, the proposal also would increase the rate of the rebate that pharmaceutical companies pay for medications sold to Medicaid from 15.1% to 22.1%. The proposal also would seek to end agreements under which brand-name pharmaceutical companies pay generic pharmaceutical companies to delay market entry of generic versions of their products.

According to Reuters, although health insurers and pharmaceutical companies "are likely to resist any efforts that would curb their revenues," they might "eventually benefit if the savings are used to provide coverage to those currently without health insurance" (Heavey, Reuters, 2/26).

Additional Details
The budget proposal would reduce the HHS budget by 2% from FY 2009 to $77 billion (Washington Post graphic [2], 2/27). Under the proposal, funds for efforts to reduce Medicare and Medicaid fraud would increase by $311 million. The proposal would provide more than $1 billion for FDA (Wall Street Journal graphic [1], 2/27). In addition, the proposal would change FDA policy to allow the reimportation of medications from other nations (Washington Post graphic [2], 2/27).

The proposal also includes a provision that would seek to double cancer research over several years. The proposal would provide more than $6 billion for cancer research at NIH, an increase from the $5.6 billion provided for FY 2009 (Wall Street Journal graphic [1], 2/27). In addition, the proposal includes $211 million for autism research.

The proposal would increase the USDA budget by 6% from FY 2009 to $26 billion, which includes a $1 billion increase in funds for food and nutrition programs.

The proposal also would increase the Department of Veterans Affairs budget by 11% from FY 2009 to $56 billion. Under the proposal, eligibility for VA health care programs would extend to middle-income, nondisabled veterans. The proposal would increase funds for programs to help veterans of the wars in Iraq and Afghanistan who experience post-traumatic stress disorder or traumatic brain injuries. In addition, the proposal includes additional funds for improvement of health care information technology systems at VA (Washington Post graphic [2], 2/27). The proposal also would increase mental health screening for veterans (USA Today graphic, 2/27).

Reaction
Congressional Democratic leaders said that they hope to approve the proposal this spring, although House Majority Leader Steny Hoyer (D-Md.) said that he expects difficulty in the effort to find adequate support for passage (Montgomery, Washington Post, 2/27). According to Dow Jones, reaction to the proposal among lawmakers was "mixed," with "views split on partisan lines" about the provisions that would make tax changes and reduce payments to MA plans to finance the reserve fund (Yoest, Dow Jones, 2/27).

The prospects for health care reform legislation also remain uncertain this year. Neither the House nor the Senate has set dates for debate on health care reform legislation, although the Senate might address such legislation this summer (Espo, AP/Boston Globe, 2/27). Robert Laszewski, president of consulting firm Health Policy and Strategies, said that, with the lack of specific details on health care reform included in the budget proposal, "I think the Obama administration has really abrogated health reform to Congress" (Reichard, CQ HealthBeat, 2/26).

Editorials

• Detroit Free Press: Health care spending "will continue to hamstring economic growth in this country if the current system doesn't undergo dramatic change," a Free Press editorial states. According to the editorial, "moving the needle on health care" will not be "easy -- or cheap," but "Obama's budget includes tax changes on top incomes that will bring in more revenue, along with some steep savings in Medicare." The editorial continues, "Both will touch off fierce fights in Congress. But the status quo no longer works for so many Americans that their senators and representatives have to be attuned to the need for change" (Detroit Free Press, 2/27).
  
  
• Los Angeles Times: "Accepting the administration's numbers, the budget shows the deficit being cut in half by the end of Obama's current term," a Los Angeles Times editorial states. The Los Angeles Times continues, "But having narrowed the fiscal gap as far as he promised, the president proposes to go no further. Instead, the deficit is projected to rise steadily as the economy grows, instead of shrinking as it did in the 1990s." The editorial states, "That's true in part because the administration doesn't predict any savings in fast-growing Medicaid, Medicare or retirement costs, despite its ambition to rein in health care costs and shore up Social Security," adding, "But another important factor is the additional benefits, tax cuts and domestic programs that Obama wants to fund, which eat into the savings he proposes to achieve through tax hikes and benefit reductions" (Los Angeles Times, 2/27).
  
  
• New York Times: Obama's first budget recognizes that "to recover from George W. Bush's reckless economic policies, taxes must go up," a New York Times editorial states, adding that Obama's targeted tax increase will help "pay for health care reform in a way that doesn't dig a deeper hole" (New York Times [1], 2/27).
  
  
• New York Times: Obama's budget "won't come close to financing universal coverage," but it is "an impressive down payment on his pledge to make health care reform a priority right from the start of his administration," according to a New York Times editorial. The editorial states, "Those critics who will inevitably say that [Obama] is overreaching in the midst of an economic crisis should listen to the millions of Americans -- employers, employees and the unemployed -- struggling with the crushing costs of health care." The editorial concludes that "the president has now made health care reform a top priority, and this plan is a sound start" (New York Times [2], 2/27).
  
  
• USA Today: Obama "took a potentially useful step toward making sure every American has health coverage" by proposing a $634 billion reserve health fund, a USA Today editorial states. The editorial adds that the fund "sounds impressive, but it's just half the projected cost of extending medical insurance to everyone" (USA Today, 2/27).
  
  
• Wall Street Journal: Even advocates of Obama's plan to overhaul health care "say the cost will be closer to $1 trillion over 10 years, and probably much more," according to a Journal editorial. "Meanwhile, the president is promising to reform entitlements, but his budget proposes a net increase of about $1 trillion in Medicare, Medicaid and other entitlements," the editorial states. However, "The biggest illusion in this budget may be its optimistic economic forecast," the Journal states, adding, "The only impetus for growth in this budget comes from the government spending more money that it is taking out of the job-producing private economy." According to the Journal, "With $1 trillion of new entitlements, $1.4 trillion in new taxes, and $5 trillion in new debt, America's entrepreneurs aren't getting any help soon from Washington." The Journal states, "Americans are only beginning to understand the magnitude of Mr. Obama's ambitions, and how much of their own income will be required to fulfill them" (Wall Street Journal, 2/27).

Opinion Pieces

• David Brooks, New York Times: Health care "is an issue where everybody wants benefits they don't pay for, where perverse incentives have created an expensive system that doesn't deliver results" and "where aggressive presidential leadership is mandatory," New York Times columnist Brooks writes, adding, "Yet in no other area does the administration cede so much authority." In the process of developing overhaul legislation, the "balance of power will be clear," as the "same old chairmen habituated by the same old interest groups will dominate everything," he writes. According to the piece, there "will be a wide array of committee chairmen in the House and Senate scrambling for influence, maneuvering with and against each other through a Machiavellian process of secret negotiations and back-room deals." He concludes, "Obama blew a mighty trumpet Tuesday night, but after you blow the trumpet, you actually have to charge" (Brooks, New York Times, 2/27).
  
  
• Paul Krugman, New York Times: While Obama's budget "looks very, very good," the nation's "really big fiscal problems lurk over" the 10-year span covered by the plan, New York Times columnist Krugman writes. The piece states that "sooner or later we're going to have to come to grips with the forces driving up long-run spending -- above all, the ever-rising cost of health care." He adds that "even if fundamental health care reform brings costs under control, I at least find it hard to see how the federal government can meet its long-term obligations without some tax increases on the middle class" (Krugman, New York Times, 2/27).
  
  
• David Leonhardt, New York Times: Obama's plan to "lift the incomes of the middle class and poor through ... an overhaul of health care" is "likely to meet stiff opposition from some doctors and insurers," according to New York Times columnist Leonhardt. He adds that Obama's budget would begin "paying for investments that would eventually allow Medicare officials to refuse to pay for medical treatment" that is proven to be relatively ineffective, which would "vastly reduce the government's long-term budget deficit" and likely would "bring down private health costs, since insurers typically follow Medicare's lead" (Leonhardt, New York Times, 2/27).
  
  
• Mark Thornton, Wall Street Journal: Despite Obama's "lofty goal" of "'seeking a cure for cancer in our time,'" the National Cancer Institute "is not mapping out a specific plan or strategy on how to most effectively use its new money," a former FDA medical officer and President of the Sarcoma Foundation of America Thornton writes in a Journal opinion piece. According to the piece, "Funding a national effort to fully validate [progression-free survival] as a universal FDA approval standard across all cancer drug trials needs to be a high priority use of the NCI monies now available," noting that doing so would allow for clinical trials that can be completed in less time. Thornton adds, "If the dam holding back rapid clinical trials can be broken, there will be new hope of having, in our lifetimes, new drugs speeding toward a cure for cancer, or at least for slowing down death from this disease" (Thornton, Wall Street Journal, 2/27).
  
  
• Charles Krauthammer, Washington Post: Obama's speech this week "constitutes the boldest social democratic manifesto ever issued by a U.S. president," as, among other things, it stated his intentions to "create the middle step that will lead ultimately and inevitably to [a] single-payer" health care system, syndicated columnist Krauthammer writes in a Post opinion piece. He continues that the "way to do it is to establish a reformed system that retains a private health insurance sector but offers a new government-run plan ... so relatively attractive that people voluntarily move out of the private sector, thereby starving it." The "ultimate result is a system of fully socialized medicine," Krauthammer writes, noting that this "will probably not happen until long after Obama leaves office," but "he will be rightly recognized as its father" (Krauthammer, Washington Post, 2/27).
  
  
• Steven Pearlstein, Washington Post: Obama's budget "incorporates bold proposals" on issues such as overhauling the health care system, but he "knows he's unlikely to win any of it if he cannot change the way business is done in Washington," according to Post columnist Pearlstein. The largest challenge confronting Obama "is to get Americans and their representatives in Washington to take a broader view of their own self-interest -- to see that the benefits they'll get from finally balancing the budget or reforming health care ... are so great that they will more than offset the sacrifices they might have to make in terms of paying higher taxes or losing a subsidy or accepting some increase in government regulation," Pearlstein adds. He concludes, "Judging from the reaction to his budget on Capitol Hill and K Street, ... it would seem that Obama's got a long way to go" (Pearlstein, Washington Post, 2/27).

Broadcast Coverage

• ABC's "World News" on Thursday included a discussion on the reserve fund for health care reform included in the budget proposal with ABC medical editor Tim Johnson and ABC anchor George Stephanopoulos (Gibson, "World News," ABC, 2/26).
  
  
• American Public Media's "Marketplace" on Thursday reported on the reserve fund. The segment includes comments from WBB Securities analyst Steve Brozak; Miller Tabak analyst Les Funtleyder; and Len Nichols, director of the Health Policy Program at the New America Foundation (Babin, "Marketplace," American Public Media, 2/26).
  
  
• CBS' "Evening News" on Thursday reported on the reserve fund (Reid, "Evening News," CBS, 2/26).
  
  
• CNN's "American Morning" on Thursday reported on the reserve fund (Malveaux, "American Morning," CNN, 2/26). A transcript of the segment is available online.
  
  
• CNN's "News Room" on Thursday included a discussion on the reserve fund with CNN senior medical correspondent Elizabeth Cohen (Harris, "News Room," CNN, 2/26). A transcript of the segment is available online.
  
  
• MSNBC's "1600 Pennsylvania Avenue" on Thursday reported on the budget proposal and the reserve fund. The segment includes comments from Rep. Allyson Schwartz (D-Penn.) and House Minority Leader John Boehner (R-Ohio) (Schuster, "1600 Pennsylvania Avenue," MSNBC, 2/26).
  
  
• NBC's "Nightly News" on Thursday reported on the budget proposal and the reserve fund (Guthrie, "Nightly News," NBC, 2/26).
  
  
• NPR's "All Things Considered" on Thursday reported on the budget proposal (Horsley, "All Things Considered," NPR, 2/26). In addition, NPR's "All Things Considered" on Thursday reported on the reserve fund. The segment included comments from Karen Ignagni, president of America's Health Insurance Plans; Charles Kahn, president of the Federation of American Hospitals; American Medical Association President Nancy Nielsen; conservative health columnist John Goodman; and Dan Mendelson, a health budget official in the Clinton administration (Rovner, "All Things Considered," NPR, 2/26).
  
  
• NPR's "Morning Edition" on Friday included reactions on the budget proposal from several Democratic and Republican congressional leaders (Welna, "Morning Edition," NPR, 2/27).
  
  
• NPR's "News & Notes" on Thursday included a discussion on the reserve fund with Robert Moffitt, director of the Center for Health Policy Studies at the Heritage Foundation, and Linda Blumberg, a senior fellow at the Health Policy Center at the Urban Institute (Cox, "News & Notes," NPR, 2/26).
  
  
• PBS' "Online News Hour" on Thursday reported on the budget proposal (Holman, "Online News Hour," PBS, 2/26). In addition, "Online News Hour" on Thursday included a discussion on the reserve fund with Susan Dentzer, editor in chief of the journal Health Affairs, and National Public Radio health correspondent Julie Rovner (Suarez, "Online News Hour," PBS, 2/26).
  
  
• PBS's "News Hour with Jim Lehrer" on Thursday included an interview with White House Office of Management and Budget Director Peter Orszag, who discussed the reserve fund and other issues (Woodruff, "News Hour with Jim Lehrer,' PBS, 2/26).

Reprinted with kind permission from http://www.kaisernetwork.org. You can view the entire Kaiser Daily Health Policy Report, search the archives, or sign up for email delivery at http://www.kaisernetwork.org/dailyreports/healthpolicy. The Kaiser Daily Health Policy Report is published for kaisernetwork.org, a free service of The Henry J. Kaiser Family Foundation.

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