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President Obama’s 2015 Budget to Cut Medicare Spending by $400 billion

President Obama’s budget for fiscal year (FY) 2015 would lower Medicare spending by over $400 billion through 2024, and would represent approximately 25 percent of the budget’s overall reductions in federal spending, according to a Kaiser Family Foundation Issue Brief. The Medicare provisions of the President’s FY 2015 budget are similar to his Administration’s FY 2014 budget proposal, and would extend the Medicare Hospital Insurance Trust Fund’s solvency by a period of five years.

“Although we have seen a notable and significant decline in health care spending growth over the last few years, in part due to the Affordable Care Act, we know that over the long run, the growth of health care costs continues to be our Nation’s most pressing fiscal challenge,” stated President Obama. “That is why the Budget builds on the savings and reforms in the health reform law with additional measures to strengthen Medicare and Medicaid and encourage high-quality and efficient health care.”

Over 34 percent of the President’s proposed Medicare savings would be attributable to reductions in payments for Medicare Part B and Part D prescription drugs. “The single largest source of Medicare savings would require drug manufacturers to provide Medicaid rebates on prescriptions for Part D Low Income Subsidy enrollees,” according to Kaiser, which would represent an estimated budget impact of $117.25 billion from 2016 through 2024. In addition, exclusivity periods for biologics would be reduced from 12 years to 7 years, and the Administration would prohibit additional periods of exclusivity for small changes in product formulations, representing estimated savings of $4.21 billion. Other changes to Medicare Part B and Part D include: (1) modification to Part B drug reimbursements; (2) increased manufacturing discounts for Part D prescription drugs; (3) bonus payments to high quality Part D plans; (4) suspended coverage for questionable Part D prescriptions; and (5) a prohibition of “pay for delay” arrangements.

An additional 33 percent of proposed savings would be attributable to a reduction in Medicare payments to providers. However, reductions in Medicare payments to post-acute care providers alone would represent 112.44 billion in savings, according to the President’s budget. Further, approximately 16 percent of proposed Medicare savings would be a result of higher beneficiary premiums, deductibles, and cost-sharing. Specifically, the President’s budget would increase the number of beneficiaries that would be subject to income-related premiums under Part B and Part D, accounting for approximately $52.79 billion in savings. The FY 2015 budget would also: (1) modify the deductible for Part B beneficiaries; (2) create home health copayments for new beneficiaries; (3) impose a premium surcharge on new beneficiaries purchasing “near first-dollar” Medigap policies; and (4) encourage low-income beneficiaries to use generic prescription drugs.

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