The President’s Budget: Low Expectations and Election-Year Politics Yield Mediocrity

On Tuesday, President Obama released his proposed federal budget for Fiscal Year (FY) 2015. Unsurprisingly, with a divided Congress and mid-term elections in the offing, there is not much in the way of new initiatives to signal a shift in the status quo of partisan gridlock over reform of the Medicare program. And to be fair, Republican budgets in recent years have yielded little ground on their prevailing Medicare reform proposal, under which Medicare beneficiaries would receive a voucher to buy private insurance plans. This failure in leadership on both sides – the remnants of the Budget Control Act and Super Committee – perpetuates inefficient Medicare spending, and with the resulting caps on discretionary spending, jeopardizes investment in discretionary health care priorities such as research, public health and prevention activities, as well as other programs.

The President’s Budget

In summary, the president’s budget proposes a variety of health-related policies that, combined, would save about $400 billion over a decade. These savings proposals focus heavily on Medicare and Medicaid, which under the president’s budget account for $11.2 trillion in federal spending between 2015 and 2024. Most recommendations were included in previous budget proposals. These proposed policies include:

• Several payment cuts to Medicare providers and plans, especially focusing on post-acute care providers, Medicare Advantage plans, academic medical centers, clinical laboratories, physician-administered drugs, and payments to hospitals to help offset bad debt ($229 billion over ten years).
• Changes to beneficiary premiums and cost-sharing, such as an expansion of income-related premiums for high-income Medicare beneficiaries, a higher Part B deductible, a premium surcharge for beneficiaries who purchase first-dollar Medigap plans, and stronger incentives for the use of generic drugs by low-income beneficiaries ($68 billion over 10 years).
• A variety of changes to Medicare Part D prescription drug coverage, including mandatory drug rebates ($125 billion over ten years).
• An assortment of policies that would have smaller budget impacts, including a proposal to reduce Medicaid payments for drugs and durable medical equipment, extend higher Medicaid payments to primary care providers, and reduce the exclusivity period for biologic drugs. ($31 billion over ten years)

Apart from Medicare and Medicaid proposals, the budget also proposes increasing spending about $30 billion over ten years for health centers, Indian Health Service (IHS)/Tribal/Urban Indian Health programs, workforce investments, extension of low-income assistance for Medicare beneficiaries, and investment in quality measures, among other spending proposals.

While the president’s budget describes continued efforts to encourage high-quality, efficient care, designed to make Medicare more sustainable, and the administration commits to working with Congress to reform Medicare’s sustainable growth rate (SGR) formula for physician payment, there is little discussion in documents released by HHS of the importance of delivery system reform. These reforms include incentives for both providers and patients to participate in organized systems of care. The Bipartisan Policy Center (BPC) issued a report, A Bipartisan Rx for Patient-centered Care and System-wide Cost Containment, in April 2013. That proposal, along with those from organizations such as the Brookings Institution, the Commonwealth Fund and others, urge more proactive reforms to accelerate the transition toward health care delivery that improves quality and value, and reduces costs.

Delivery system reform is moving forward in many areas of the country. While early reports on demonstrations authorized through the Centers for Medicare and Medicaid Services (CMS) and its Center for Medicare and Medicaid Innovation (CMMI) appear to be slowing costs and improving quality, much more can and should be done. The administration and Congress should build on the successful agreement (if not financing), of SGR reform, to establish payment incentives to better organize care to improve quality and reduce costs. Beneficiaries should also have broader incentives to enroll in new models of care, and critical to that is redesigning Medicare benefits to eliminate the complicated array of deductibles and copays to make patient cost-sharing similar in structure to private insurance. Importantly, Medicare benefit redesign should be done in a way that protects lower-income Medicare beneficiaries, and permits patients to see their physicians without first meeting a large deductible.

Failure to reach a compromise on Medicare reform has placed significant pressure on domestic discretionary spending, yet experts predict no action this year because of the 2014 mid-term elections. After the mid-term elections, one might just as easily argue that reform should be delayed until after the 2016 presidential elections. The consequence of inaction, however, is a continuation of provider cuts, as outlined in the president’s budget and a continuation of the disorganized health care delivery system, which often results in high cost and poor quality. Our nation deserves better from its leaders.

Brian Collins contributed to this post.