Obama outlines plan to cut Medicare, Medicaid costs

The president said Congress should “build on” the reforms included in the healthcare law, which he said already cut the deficit by $1 trillion. 

The president called for strengthening a payment advisory board that would recommend cuts to reimbursement rates if Medicare costs grow too fast.

Obama also wants to expand drug rebates for the 9 million or so low-income seniors and people with disabilities who are on both Medicare and Medicaid.


Of the two proposals, the most controversial is likely to be Obama’s push to strengthen the reform law’s Independent Payment Advisory Board (IPAB). Lawmakers must adopt the board’s proposed cuts to Medicare providers or propose their own. 

Many healthcare providers — including staunch administration healthcare reform allies such as hospitals — are dead set against the IPAB as it stands, and several Democrats, including Reps. Shelley Berkley (Nev.) and Michael Capuano (Mass.), have already signed on to Republican legislation ending it.

Far from eliminating IPAB, Obama proposes strengthening it beginning in 2018 by having it kick in if Medicare costs are growing at GDP per capita plus 0.5 percent, far sooner than the current rate of GDP plus 1 percent. The proposal gives the secretary of Health and Human Services authority to automatically sequester Medicare dollars if costs grow too fast; it also promotes value-based benefit designs if they don’t shift costs to seniors.

The president said that if projected savings to Medicare under the reform law fail to materialize, “this approach will give the independent commission the authority to make additional savings by further improving Medicare.”

The framework adopts some of the recommendations proposed by the Simpson-Bowles deficit commission last year regarding dual eligibles, or people who qualify for both Medicare and Medicaid. The recommendations include placing dual eligibles in Medicaid managed care (the commission’s proposal would save $12 billion) and extending Medicaid drug rebates to them (saves $49 billion).

Those proposals are in keeping with the goals of the healthcare reform law, which created an office for dual eligibles within the Medicare agency with the stated goal of making care more cost-effective.


The framework proposes simplifying the Medicaid program so that every state would get a single matching rate for its Medicaid and Children’s Health Insurance Program. The proposal calls for rewarding states for efficiency and automatically increases federal payments if a recession causes enrollment, and therefore state costs, to rise.

Obama was adamant that Medicare must be reformed without shifting it to private industry.

“I will not allow Medicare to become a voucher program that leaves seniors at the mercy of the insurance industry, with a shrinking benefit to pay for rising costs,” Obama said. “I will not tell families with children who have disabilities that they have to fend for themselves.”

“We will reform these programs, but we will not abandon the fundamental commitment this country has kept for generations,” he said.

This post was originally published at 1:55 p.m. and updated at 7:30 p.m.