• What does Obama’s jobs plan mean for Medicare and Medicaid?

    In his speech last night, President Obama said he will pay for his $450 billion jobs proposal with changes to Medicare and Medicaid, among other things. No details have been made available yet, creating the perfect conditions for blogospheric speculation. In that spirit, what might he have in mind for those two programs? Suzy Khimm answers:

    Obama’s previously floated the idea of raising the Medicare eligibility age to 67, which the Congressional Budget Office estimates would save $124.8 billion by 2027 if it were gradually phased in. But even Republicans who support the change wouldn’t want it to take effect immediately, so it’s unlikely that this would produce any real money to pay for the bill within 10 years, which is the window of time the CBO will consider in estimating the plan’s cost.

    Obama could propose squeezing more money out of pharmaceutical companies in Medicare Part D: Both House Democrats and Bowles-Simpson supported a change along these lines that would save an estimated $120 billion. But that would be a huge lift politically, as pharma lobbyists successfully beat back that idea during the health-reform debate. There are other savings that could be achieved by making Medicare more efficient, but these won’t add up to much, compared to the cost of Obama’s jobs bill.

    Finally, Democrats made sure to exclude Medicaid from the purview of the “supercommittee.” So it’s unclear how far Obama will really go in squeezing the program when his allies have decried benefit and provider cuts. One alternative, however, could be improving care coordination for patients who qualify for both Medicaid and Medicare, whose long-term care costs a disproportionate amount of money.

    Medicare has already been squeezed to pay for coverage expansion of the ACA. One way or another, it is likely to get squeezed some more for the purposes of deficit reduction. Now, it could be squeezed a third time to pay for a jobs bill. Even for a guy that likes hugs, that’s beginning to feel like a lot of squeezing.

    I’m not taking a stand as to whether or not there’s enough milk in the Medicare cash cow to fuel all these priorities. Maybe there is. Maybe not. However, at some  point the cow is dry. Also, you can only spend each dollar once. If it isn’t used for Medicare then it is either used to reduce the deficit or it is used to fund some other program.

    That’s all mostly short-term thinking. Long-term, Medicare is the precisely the right program to rein in and by a lot. Yet, there’s only so far we can do so without addressing the entire health system. Medicare and private prices cannot deviate too far from one another without causing an access problem for Medicare beneficiaries, which itself causes a political problem for policymakers.

    So, sooner or later, Medicare is the right cow, but it is not the only cow. One thing is clear, it is no longer a sacred cow.

    UPDATE: I struck through the last paragraph in the quote because, as explained in the comments, the supercommittee is not restricted in any way. It may do as it wishes with Medicaid or any other type of spending or taxation.

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    • It does appear as if the White House seems intent on tapping Medicare and Medicaid reform as sources of future revenue. However, the United States currently spends around 16 percent of our GDP on health care and still receives suboptimal health outcomes compared to other developed nations (who generally spend significantly less on health care expenditures in aggregate). Thus, there is plenty of room for health care system efficiency improvements.

      Secondly, there still exists several Medicare reform options that could be implemented in order to reduce U.S. health care costs (and subsequently increase future government revenue). These measures could include reviving the public option, changing our health care financing methods to favor more primary care medicine over specialty care medicine, and effective negotiation of prescription drug prices with pharmaceutical companies.

      I agree that “shaking the Medicare tree” should not be our only solution to financing important initiatives such as the American Jobs Act, but there is a plenty of “ripe fruit” in that tree waiting to be picked.

    • Re quotation from Suzy Khimm: Congress did not “exclude Medicaid from the purview of the ‘supercommittee.'” It’s just excluded from the back-up automatic cuts.