Making Cents of the Budget

President Obama’s Fiscal Year 2016 budget contains several health care-related proposals, including several aimed at reducing Medicare spending.  But with Republicans in control of both chambers of Congress, how much of the White House spending plan survives remains to be seen.  With that in mind, here is a look at some of the administration’s budget priorities in health care.

  • Extend the Children’s Health Insurance Program (CHIP) through 2019. CHIP serves about 8 million low-income children in the U.S. who don’t qualify for Medicaid.  Around 62,000 children are in the program in Colorado. Without congressional action, federal funding for CHIP will end in September. Children’s health advocates support the funding extension; others­­­ question the amount of money the program should receive given new insurance and financial assistance options available through the Affordable Care Act. The president proposes to continue to fund CHIP by increasing tobacco taxes.
  • Bolster the financial sustainability of Medicare. Several of the president’s proposals are aimed at Medicare’s bottom line, including introducing higher premiums for higher-income beneficiaries beginning in 2019.  That same year, new beneficiaries who purchase Medigap, a policy intended to supplement Medicare coverage, would face an average surcharge of about 15 percent of Medigap premiums.  The administration says these proposals would encourage Medicare enrollees to be more cost conscious health care consumers, while improving the program’s financial stability. But senior advocates, including AARP, are concerned the president’s plans will hinder access to care.    
  • Speed up closing the Part D donut hole. The donut hole is a temporary coverage gap in Medicare prescription drug coverage.  In an attempt to close the donut hole by 2017 (three years earlier than under current law), the proposed budget would increase discounts for brand name drugs from 50 percent to 75 percent. 
  • Cut prescription drug costs.  For the first time, the secretary of the federal Department of Health and Human Services would be able to negotiate the price of specialty drugs on behalf of individuals in Medicare.  Medicaid and the Veterans Affairs department already have authority to obtain drug discounts, but the largest federal payer, Medicare, does not. The price of specialty drugs is a hot topic among payers, pharmaceutical companies and consumer advocates. The administration believes the new authority would bring down the cost and improve patient care. Expect pharmaceutical companies to strongly oppose this proposal.
  • Reduce and restructure Medicare payments to post-acute providers. The president’s plan would change Medicare reimbursement for some post-acute providers, such as nursing facilities, which care for individuals after a hospitalization, by phasing in bundled payments.    Unlike typical fee for service payments, bundled payments are a lump sum payment based on the expected cost of care.  Because bundled payments do not compensate providers for each individual service rendered, some research suggests that this form of payment can rein in spending. 
  • Repeal the sustainable growth rate (SGR) formula. Medicare physician rates are regulated by the sustainable growth rate formula.  This is a method to ensure that increases in Medicare physician spending don’t exceed growth of the economy.  If they do, current law requires Medicare physician rates to be adjusted.  However, every year Congress takes temporary action to delay these reductions.  The president’s budget recommends permanently replacing the SGR with a value-based payment system that would compensate providers based on successful outcomes — a concept endorsed by Congress. The goal is to have 30 percent of Medicare payments based on this alternative model in 2016, and 50 percent by 2018. Many observers say the SGR does not promote quality and efficiency, but don’t agree on how to eliminate it.