Obama Launches Push for Health Care Reform Through Budget Proposal

President Obama, with Vice President Joe Biden and Treasury Secretary Timothy Geithner, speaks about the budget on Thursday, Feb. 26, 2009, in Washington. Photo by Doug Mills/The New York Times/Redux

President Barack Obama opened an ambitious drive toward reforming the nation’s health care system Thursday with a budget plan that leveraged both the momentum of his election and the angst over the effect of spiraling health costs, especially during an economic crisis.

Sixteen years after another Democratic president—Bill Clinton—tried to remake health care, Obama showed that he will make health care reform a centerpiece of his first year. But he went about the task differently—starting with creating a $634 billion kitty toward paying for expanded and improved health coverage. Clinton started with a full-grown plan that he sprang after months of closed-door work that became a source of ridicule and flopped in Congress.

“Because of crushing health care costs and the fact that they drag down our economy, bankrupt our families and represent the fastest-growing part of our budget, we must make it a priority to give every single American quality, affordable health care,” Obama said just before the budget was released.

“With this budget, we are making a historic commitment to comprehensive health care reform. It’s a step that will not only make families healthier and companies more competitive, but over the long term it will also help us bring down our deficit.”

Obama offered few details on health coverage as the nation moves toward ensuring that it is available to everyone. But he laid out a plan to raise $634 billion to cover a chunk of a comprehensive reform.

Increasing health care costs affect not only companies and individuals but also the stability of government programs like Medicare and Medicaid. Obama’s budget points out that after adjusting for inflation, family health insurance premiums have risen 58 percent since the year 2000, while wages have increased only 3 percent. Nearly 46 million Americans have no health insurance.

Obama’s plan to set up a reserve fund drew fire because it would raise taxes on the wealthy. It also would raise money by decreasing Medicare and Medicaid payments to insurance companies, drug makers and hospitals.

But many interest groups involved in health care that would be affected held their fire Thursday, saying they want to look at the details or that they are hoping for reform that spreads the pain around evenly.

But Republicans in Congress were not so patient. House Republican Leader John Boehner of Ohio said a recession is no time to raise taxes.

“Herbert Hoover tried it, and we all know where that led. While some may spin this as higher taxes for ‘the rich,’ the fact is, it will hit everyone—from small businesses and family farms to retirees and anyone who turns on a light switch,” he said. “This will kill more American jobs and lead to an even longer, deeper recession.”

But David Sloane, senior vice president of government relations and advocacy at AARP, said Obama’s push is a welcome “green light to move forward,” even if remaking the nation’s health care system is a daunting task. “Clearly they’ve made the decision that inaction will be more costly than taking action,” Sloane said.

Health care reform could cost $1 trillion or more, according to experts. But Obama begins the process of digging up funding by taxing families that earn more than $250,000, and by changing the amount it pays to health care providers.

Taxes on the wealthy

Medicare beneficiaries who are wealthy would pay higher premiums for prescription drug plans. They already pay more for doctor care under Medicare Part B premiums.

Ed Coyle, executive director of the Alliance for Retired Americans, said he was leery of that idea because it might hurt retirees.

Obama also would cancel as of 2010 a tax cut for those who earn more than $250,000. Those wealthier earners would pay more in income taxes—raising the top rate to 39.6 percent instead of 36 percent. And those paying 33 percent now would see their rates go up to 36 percent. Taxes on capital gains also would increase for wealthy families. And wealthy families would no longer be able to fully deduct their mortgage interest and charitable donations. Instead they would be able to deduct only 28 percent.

Stan Collender, a budget expert and a partner at Qorvis Communications in Washington, said polls showed that wealthy voters chose Obama 53 percent to 46 percent for Republican Sen. John McCain. “There almost certainly was some expectation among those folks that taxes were going up," he said.

Still, said Clinton Stretch, a principal at Deloitte Tax, in a conference call with Collender for reporters, wealthy taxpayers also may be tapped to shore up Social Security in the future. “The question is how many times can you go back to the same well,” he said.

And, tax expert Stretch added, even if the wealthy don’t rise up against the tax increase, the powerful interests of the real estate industry and charitable organizations will object for fear that the tax cuts will hurt them. “I would think there will be a real donnybrook.”

The tax hikes on the wealthy would bring in about $318 billion over 10 years, while changes in payments to medical providers and improvements in health care would provide the rest of the reform fund.

Other ways to feed the kitty

Insurance companies that offer Medicare Advantage private plans would take a major hit. Obama said those plans cost the federal government about 13 percent more than traditional Medicare.

Obama would set up a new competitive system where the private insurers would bid on providing Medicare Advantage plans for a given area and the price would be set based on an average of the bids.

Coyle lauded the $175 billion cut over 10 years to insurance companies. “This egregious example of corporate welfare drains the Medicare Trust Fund and forces every senior to spend an additional $3 in monthly premiums to cover these costs,” Coyle said. “President Obama made it crystal clear today that Medicare s top priority should be the health of our nation’s seniors, not its big drug and insurance companies. This is a refreshing change in Washington.”

But Sen. Mike Enzi of Wyoming, the top Republican on the Senate Health, Education, Labor and Pensions Committee, said he will oppose the president’s proposal to cut funding for Medicare Advantage plans, which serve 11 million beneficiaries.

“We should not pay for health care reform by slashing programs and eliminating choices,” Enzi said. “The president said repeatedly during his campaign that Americans who like the health insurance they have would keep their existing plans in his administration. His budget proposal undercuts that promise.”

Karen Ignani, head of the trade group America’s Health Insurance Plans, also objected to the proposal for cutting Medicare Advantage payments to insurers. But she said her group would work toward health reform.

“All stakeholders must rise to the challenge the President has put forth to develop a uniquely American solution that gets everyone covered, restrains health care cost growth, and aligns patient care with medical best practices,” she said.

Obama’s plan also would mean less money for pharmaceutical companies. He would increase the amount they must rebate the government for prescription drugs in the Medicaid program—raising the rebate from 15.1 percent to 22.1 percent.

The Pharmaceutical Research and Manufacturers of America—PhARMA—had mostly positive things to say about the plan, though head Billy Tauzin warned: “We understand the president’s budget proposal must make difficult choices in order to pay for needed reform. … We strongly urge against the adoption of policies that could undermine innovation and disrupt patient access to life-saving medicines.”

Hospitals also would feel the effects. The budget aims to reward hospitals for reducing complications that result in readmissions. About 18 percent of Medicare hospital patients now end up readmitted, meaning both health complications for patients and added costs for the government.

Hospitals would receive bundled funds for both hospital care and post-hospital care during the 30 days after a patient is released. And their fees would be reduced if they had too many readmissions, resulting in a savings of $26 billion over 10 years.

Richard Coorsh, spokesman for the Federation of American Hospitals, a trade group of for-profit hospitals, said they were still reviewing the fine print but were enthusiastic about health care reform. As far as the cuts to hospitals, he said, “we recognize the administration is seeking money from a number of sources.”

Collender said Obama’s decision to leave the specifics of health care reform to later negotiations with Congress is the reason industry groups didn’t come out swinging Thursday. Otherwise, he said, the attack ads would have been on the air by Friday.  

Tamara Lytle was a correspondent and Washington bureau chief for the Orlando Sentinel from 1997 to 2008.