The President's Health Care Offsets

June 13 - In this morning's weekly radio address, President Obama again made the case for health care reform, arguing that it is "essential to restoring fiscal responsibility." To ensure his health care reform plan will be deficit neutral over the next decade, the President anounced $313 billion in additional savings beyond the $635 billion in offsets outline in the President's Budget.

Most of the savings proposed, this morning, are from the following three measures (quoted from the Administration):

• Incorporate productivity adjustments into Medicare payment updates. Productivity in the U.S. economy has been improving over time. However, most Medicare payments have not been systematically adjusted to reflect these system-wide improvements. We should permanently adjust most annual Medicare payment updates by half of the economy-wide productivity factor estimated by the Bureau of Labor Statistics. This adjustment will encourage greater efficiency in health care provision, while more accurately aligning Medicare payments with provider costs.

• Reduce subsidies to hospitals for treating the uninsured as coverage increases. Instead of paying hospitals to treat patients without health insurance, we should give people coverage so that they have insurance to begin with. As health reform phases in, the number of uninsured will go down, and we would be able to reduce payments to hospitals for treating those previously uncovered. This would be done by establishing a new mandatory mechanism to better target payments to hospitals for unreimbursed care remaining after coverage increases. Beginning in FY 2013, payments would be gradually phased down so that by 2019, funding would equal 25 percent of Medicare/Medicaid Disproportionate Share Hospitals (DSH) funding in 2013, and updated by inflation.

• Pay better prices for Medicare Part D drugs. In its meeting with the President and subsequent communication, the pharmaceutical industry has committed itself to helping to control the rate of growth in health care spending. There are a variety of ways to achieve this goal. For example, drug reimbursement could be reduced for beneficiaries dually eligible for Medicare and Medicaid. The Administration is working with the Congress to develop the most appropriate policy to achieve these savings.

Click here for a complete chart of all the $948 billion of offsets proposed so far.