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Obama details $313 billion in health-reform savings

LocalHealthGuide | June 13, 2009

In his weekly address, President Barack Obama said $313 billion in savings will make it possible to reform health-care without driving up the deficit.

“These savings will come from commonsense changes,” Mr. Obama said, “For example – if more Americans are insured, we can cut payments that help hospitals treat patients without health insurance. If the drug makers pay their fair share, we can cut government spending on prescription drugs. And if doctors have incentives to provide the best care instead of more care, we can help Americans avoid the unnecessary hospital stays, treatments, and tests that drive up costs.”

A transcript and a fact sheet issued by the White House providing more details about the projected savings are below.

Transcript: President Barack Obama’s weekly address, June 13, 2009

Last week, I spoke to you about my commitment to work with Congress to pass health care reform this year. Today, I’d like to speak about how that effort is essential to restoring fiscal responsibility.

When it comes to the cost of health care, this much is clear: the status quo is unsustainable for families, businesses, and government. America spends nearly 50 percent more per person on health care than any other country. Health care premiums have doubled over the last decade, deductibles and out-of-pocket costs have skyrocketed, and many with preexisting conditions are denied coverage. More and more, Americans are being priced out of the care they need.

These costs are also hurting business, as some big businesses are at a competitive disadvantage with their foreign counterparts, and some small businesses are forced to cut benefits, drop coverage, or even lay off workers. Meanwhile, Medicare and Medicaid pose one of the greatest threats to our federal deficit, and could leave our children with a mountain of debt that they cannot pay.

We cannot continue down this path. I do not accept a future where Americans forego health care because they can’t pay for it, and more and more families go without coverage at all. And I don’t accept a future where American business is hurt and our government goes broke. We have a responsibility to act, and to act now. That is why I’m working with Congress to pass reform that lowers costs, improves quality and coverage, and protects consumer health care choices.

I know some question whether we can afford to act this year. But the unmistakable truth is that it would be irresponsible to not act. We can’t keep shifting a growing burden to future generations. With each passing year, health care costs consume a larger share of our nation’s spending, and contribute to yawning deficits that we cannot control. So let me be clear: health care reform is not part of the problem when it comes to our fiscal future, it is a fundamental part of the solution.

Real reform will mean reductions in our long term budget. And I have made a firm commitment that health care reform will not add to the federal deficit over the next decade. To keep that commitment, my Administration has already identified how to pay for the historic $635 billion down payment on reform detailed in our budget. This includes over $300 billion that we will save through changes like reducing Medicare overpayments to private insurers, and rooting out waste in Medicare and Medicaid.

However, any honest accounting must prepare for the fact that health care reform will require additional costs in the short term in order to reduce spending in the long-term. So today, I am announcing an additional $313 billion in savings that will rein in unnecessary spending, and increase efficiency and the quality of care – savings that will ensure that we have nearly $950 billion set aside to offset the cost of health care reform over the next ten years.

These savings will come from commonsense changes. For example – if more Americans are insured, we can cut payments that help hospitals treat patients without health insurance. If the drug makers pay their fair share, we can cut government spending on prescription drugs. And if doctors have incentives to provide the best care instead of more care, we can help Americans avoid the unnecessary hospital stays, treatments, and tests that drive up costs. For more details about these and other savings, you can visit our website: www.whitehouse.gov.

These savings underscore the fact that securing quality, affordable health care for the American people is tied directly to insisting upon fiscal responsibility. And these savings are rooted in the same principle that must guide our broader approach to reform: we will fix what’s broken, while building upon what works. If you like your plan and your doctor, you can keep them – the only changes that you’ll see are lower costs and better health care.

For too long, we have stood by while our health care system has frayed at the seams. While there has been excuse after excuse to delay reform, the price of care has gone up for individuals, for business, and for the government. This time must be different. This is the moment when we must reform health care so that we can build a new foundation for our economy to grow; for our people to thrive; and for our country to pursue a responsible and sustainable path. Thank you.

White House Fact Sheet:

Paying for Health Care Reform
$313 Billion in Additional Savings to Create a Deficit Neutral Plan

We have the most expensive health care system in the world, but do not get the best results. The rising costs of health care are a burden on our families and a drain on our long-term economic growth. If we continue on the course we are on, health care expenditures will reach 20 percent of GDP within a decade. Rapidly rising health care costs are leading our nation down a fiscally unsustainable path.

For the health of the American people and the health of our economy, we must act now to bring down health care costs and reform the health care system. It is central to the long-term prosperity of the United States. That is why the President is committed to passing health care reform this year. Guided by the principle that we should fix what’s broken and build on what already works, the President wants to pass health care reform that allows one to keep their health insurance and choose their health care providers, expands coverage to the millions without, and brings down the cost of coverage.

The President is committed to undertaking reform that is completely paid for and deficit neutral over the next decade. That is why he put forward in his FY 2010 Budget an historic $635 billion down payment on reform. Roughly half of this amount comes from revenue proposals, including limiting the value of itemized deductions for families making over a quarter-million dollars a year to the rates they were during the Reagan years, and about half comes from savings from Medicare and Medicaid.

Since making this proposal, the Administration has worked with Congress on other ways to offset fully the cost of health care reform through additional savings and revenues. To that end, the Administration is detailing today savings proposals that will contribute another $313 billion over 10 years to paying for health care reform, bringing the total scoreable offsets put forward by the Administration to nearly $950 billion over 10 years. Together, this would extend the solvency of Medicare’s Hospital Insurance Trust Fund by seven years to about 2024, and reduce beneficiary premiums for physician and outpatient services by about $43 billion over the next 10 years. The Administration hopes these suggestions will help Congress as it continues to draft legislation, and remains open to any other proposals to pay for reform that Congress may put forward.

Reforming the health care system does not end at expanding coverage and making sure that it is paid for; we also must address the underlying problems in our health care system that impede quality improvements and raise costs. The President therefore believes that in addition to scoreable offsets, we must take steps to transform the health care system, such as investing in health care information technology, patient-centered quality research, prevention and wellness, and in creating a system that pays providers for providing better care not just more care. Over time, these steps will help to produce a health care system that works better and costs less.

Paying for Health Care Reform: New Savings

As was emphasized when the President’s Budget was initially released, the reserve fund represents a substantial down payment but is not by itself sufficient to fully fund comprehensive reform. The President has insisted that reform must be deficit-neutral based on real savings and revenue estimates as determined by impartial scorers. Thus, in addition to the proposals included in the FY 2010 Budget, the Administration is putting forward policy options to further rein in federal health spending, make the system more efficient, and deliver better quality of care. When combined with the Budget proposals, these new options would extend the solvency of Medicare’s Hospital Insurance Trust Fund by seven years to about 2024.

These new savings include:

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.

Other Savings

Adjust payment rates for physician imaging services to better reflect actual usage. To provide more accurate payment for physician imaging services, the Department of Health and Human Services would increase the equipment utilization factor for advanced imaging (such as magnetic resonance imaging (MRI) and computed tomography (CT) machines) from 50 percent to 95 percent. This proposal – which is closely aligned with a Medicare Payment Advisory Commission (MedPAC) recommendation – would better reflect how these technologies are actually used.
Adopt MedPAC’s recommendations for 2010 payments to skilled nursing facilities, inpatient rehabilitation facilities, and long-term care hospitals. To bring down costs and maintain quality, we shouldupdate payments based on MedPAC’s consideration of multiple variables, such as quality, access to care, and adequacy of payment. Doing so would implement MedPAC’s 2010 payment recommendations for skilled nursing facilities, inpatient rehabilitation facilities, and long-term care hospitals.
Cut waste, fraud, and abuse. It is important that patients get the best care, not just more care. Unnecessary treatments are not only expensive, but also can harm the health of the patient. To discourage physicians from ordering unnecessary or excessive treatment, we should increase the scrutiny of physicians in high-risk areas or those that order a high volume of high-risk services (such as home health, durable medical equipment, and home infusion therapy) through additional pre-payment review.

Paying for Health Care Reform: 2010 Budget Proposals

The above savings would be in addition to the down payment for comprehensive health care reform of $635 billion over 10 years detailed in the FY 2010 Budget. The reserve fund is financed roughly half through proposals to generate more revenue, and half through efficiencies and savings from Medicare and Medicaid. Based on our projections, the Medicare proposals contained in the reserve fund would extend the solvency date of the Hospital Insurance (HI) Trust Fund by two years and reduce beneficiary premiums for physician and outpatient services by about $33 billion over the next 10 years. As a result of these proposals, Medicare beneficiaries will also see an improvement in the quality of their services.

The reserve fund includes a broad array of savings proposals including:

Reducing Medicare overpayments to private insurers. The establishment of a competitive system where payments are based upon an average of plans’ bids submitted to Medicare would save taxpayers close to $177 billion over 10 years, as well as reduce Part B premiums.
Improving Medicare and Medicaid payment accuracy. By strengthening program integrity efforts, the Centers for Medicare and Medicaid Services (CMS) will address vulnerabilities that have led to billions of dollars in overpayments and fraud each year.
Improving care after hospitalizations and reducing readmission rates. A combination of incentive payments and penalties should lead to better care and result in fewer readmissions – saving roughly $25 billion over 10 years.
Expanding the Hospital Quality Improvement Program: By linking a portion of Medicare payments for acute in-patient hospital services to hospitals’ performance on specific quality measures, quality of care for beneficiaries will improve, and Medicare will save approximately $12 billion over 10 years.