Experts doubt Obama can pay for health plan with savings

Published Sep 10, 2009. By David Lightman.


WASHINGTON — Despite President Barack Obama's insistence that his $900 billion health care plan won't increase already-huge federal budget deficits, experts say that it would — unless he raised more taxes than he's suggesting he would.

Obama told a joint session of Congress Wednesday night that "reducing the waste and inefficiency in Medicare and Medicaid will pay for most of this plan."

However, he offered few details for how those savings might be achieved, and he didn't mention the key plan — backed by Democrats in the House of Representatives — to raise revenue by imposing higher income taxes on the wealthy.

The unanswered questions about his plan's costs and its effects on the federal budget deficit, on existing federal health care programs, on potential inflation, and on taxes, all remained hurdles in the path of congressional approval.

Few analysts are optimistic that Obama can trim enough spending from the government's current health care programs to pay for "most" of his health care overhaul, largely because Congress is likely to be reluctant to go along with such deep cuts.

Three House committees have approved similar health care overhaul bills, and the Senate Health, Education, Labor and Pensions Committee has passed its version. All contain a "public option," or a government-run health care plan that would compete with the private sector.

The House plan's major source of funding is a tax surcharge on adjusted gross incomes starting at $280,000 for singles and $350,000 for couples. It would generate an estimated $544 billion, or roughly half the cost of the bill, over the next 10 years. Obama didn't mention that.

A study released Wednesday by the Lewin Group, a health care consulting firm, found that while the House Democrats' approach would add only $39 billion to budget deficits over the next 10 years, it would add about $1 trillion between 2020 and 2029 as health care costs increase faster than income growth does. (Lewin is part of the United HealthCare's Ingenix health care consulting group; the study was commissioned by the Peter G. Peterson Foundation, a respected independent fiscal watchdog, and was based on estimates from the nonpartisan Congressional Budget Office.)

Over the next decade, the study found, the House Democrats' proposed Medicare and Medicaid changes would save about $231 billion, or about a quarter of the plan's cost. Between 2020 and 2029, that would rise to $735 billion in savings — still far from enough to cover what Obama calls "most" of the price.

"He's absolutely correct in saying the waste and abuse is there," said John Sheils, a Lewin Group vice president. "But it would probably take reforms that I don't think America's interested in," such as a dramatic expansion of health maintenance organizations. Rather, Obama stresses that nothing in his plan would force people to change their current coverage or doctors.

The House bills would wring Medicare savings largely from two sources: Cuts in the Medicare Advantage program and reductions in payments to hospitals, nursing facilities and other health care providers.

Under Medicare Advantage, seniors can get coverage through private insurers, who're reimbursed by the federal government. About 10.2 million, or 22 percent, of those on Medicare use the program.

The Obama administration argues that this program is wasting money, and it's proposed a new payment system that the Lewin study found could save $150 billion over 10 years.

However, that idea has proved difficult to steer through Congress, even among Obama loyalists. "Those changes would affect a lot of my constituents," said Rep. Alcee Hastings, D-Fla., whose South Florida district includes a lot of seniors.

More Medicare savings could come from changing payments to providers, and Lewin estimates that would cut another $250 billion. The House bill, however, also contains a significant Medicare cost increase and illustrates the political difficulty of making huge cuts.

Under current law, Medicare payments to doctors are supposed to drop automatically. Presidents always factor that drop into their proposed budgets, making budget deficits appear smaller. Congress usually overrides the law and provides more generous payments to physicians, however.

The House bill would end this game by basing payments on a formula that takes into account the cost of doing business. Lewin estimates that change would drive costs up by about $170 billion over 10 years.

The nonpartisan Congressional Budget Office this summer studied Obama's idea of giving an independent council authority to recommend changes in federal payments for Medicare services. The CBO found that most likely would produce about $2 billion in savings over the next decade — far less than supporters had hoped.

CBO Director Douglas Elmendorf warned that it's very hard to know how people would act under new rules.

"The probability is high that no savings would be realized . . . but there is also a chance that substantial savings might be realized," he said. There are too many variables: Will there be fundamental changes in the health care system, and in how providers are paid?

In addition, said Elmendorf, "the composition of the council could be weighted toward medical providers who might not be inclined to recommend cuts in payments to providers or significant changes to the delivery system."

The message from the studies seems clear, said Diane Lim Rogers, the chief economist at the Concord Coalition, a bipartisan group advocating fiscal discipline. Cutting Medicare and Medicaid spending, she said, "is not where he's going to get most of his savings."