The deficit reduction plan unveiled by President Obama on Monday would cut health care spending by an estimated $320 billion over the next 10 years. About $248 billion of that total would come from Medicare, and $72 billion would be cut from Medicaid. This blog post summarizes the major aspects of those spending cuts and attempts to put them in a broader perspective.

• The President said he would only approve cuts to Medicaid and Medicare if they are coupled with tax increases on the wealthy, in order to prevent low-income and vulnerable Americans from bearing a disproportionate share of the burden of deficit cutting.
• Coupling entitlement cost-savings with additional revenue will help over the longer haul to protect Medicaid, Medicare and the health care reform initiatives.
• The proposed Medicaid cut is about $22 billion less than the President recommended as part of his budget in April.
• The significant Medicaid proposals are delayed and generally won’t affect Wisconsin until 2014 or later, after the state should start to realize savings from the health care reform law’s more generous matching rates.

• The proposal would allow Medicare to benefit from the same rebates that Medicaid receives for brand name and generic drugs provided to beneficiaries who receive the Medicare Low-Income Subsidy beginning in 2013. This part of the plan is estimated to save $135 billion over 10 years.
• Another of the larger health care cost reductions would come from the so-called post-acute health providers – nursing homes, long-term care hospitals, rehabilitation facilities and home health facilities – which would face $42 billion in cuts over 10 years.
• An estimated $26.3 billion in proposed savings would come from limiting the state practice of imposing taxes on health care providers.  (We’re anxious to get more details on that part of the plan.)
• Higher income Medicare beneficiaries would pay higher premiums for Medicare Part B and Medicare prescription drug plans, raising $20 billion over 10 years.
• $14.6 billion in savings would be achieved by changing the modified adjusted gross income (MAGI) formula used to calculate eligibility for Exchange premium tax credits and cost sharing reductions, Medicaid and CHIP. The President proposes using a formula that is consistent with current Medicaid practice by including Social Security benefits in the definition of income.
• Starting in 2017, new beneficiaries who buy a Medigap policy that leaves them with little out-of-pocket costs would pay a 15 percent surcharge on that policy. Critics have argued such Medigap plans lead to excess use of health services and raise health spending. The change would net the feds $2.5 billion over 10 years.
• The deductible for Medicare Part B (physician costs) would increase for new beneficiaries by $25 in 2017, and again in 2019 and 2021, raising $1 billion over the next decade.