Will health savings go to reduce deficit rather than expand coverage?

Kaiser Health NewsFebruary 16, 2010 

WASHINGTON — In their effort to overhaul the health care system, President Barack Obama and congressional Democrats pressed hospitals, drug makers and other providers to accept billions of dollars in government payment cuts and new fees to help finance the legislation.

The groups made the financial concessions because the measure promised a rich payoff: millions of newly insured customers. If the legislation fails, however, those savings, primarily cutbacks in Medicare and Medicaid, might end up being used for something far different: reducing the federal budget deficit.

The result would be lost revenue for influential industry players, and a setback for AARP. The seniors' group went along with the proposed Medicare cuts, even in the face of criticism from members, in part because other provisions would provide new help in paying for prescription drugs and long-term care.

"They'll be eating spinach and no cake," said Paul Heldman, a senior health-policy analyst at Potomac Research Group, a Washington research firm.

The health care legislation isn't dead yet, of course; supporters are hoping that Obama's summit Feb. 25 will give the effort new life. They argue that the bill itself would help reduce the budget deficit over the long haul by lowering the growth of health care costs, an argument that many Republican critics roundly reject.

Even if the legislation is doomed, it's far from certain that the savings would be used to narrow the budget gap. Indeed, health care interests and many Democrats probably would fight any effort to use the money for an anti-deficit effort.

However, health care lobbyists privately acknowledge feeling uneasy that billions of dollars in health care savings have been put on the table and now could be used for other purposes.

Typically, past deficit-reduction efforts have included cutbacks in Medicare — the federal health program for the elderly and people with disabilities — and Medicaid — the federal-state program for poor people and those with disabilities — partly because of their sheer size.

The deficit is getting increased attention after last year's record-breaking $1.55 trillion budget gap, which partly reflects the sagging economy and efforts by the Obama administration to spur growth. If laws and policies don't change, the deficit will total an estimated $1.55 trillion again this year and $1.26 trillion next year, according to the Office of Management and Budget.

Still, any major action to tackle the deficit isn't likely to occur until next year at the earliest. On the health care bill, hospitals agreed to $155 billion in reduced Medicare and Medicaid payments over the next decade in return for a promise that 97 percent of Americans would have health insurance. Some officials said the deal was off if the $155 billion wasn't used to expand coverage.

Drug makers, for their part, agreed to $80 billion in cost savings, including covering half the costs of brand-name drugs once seniors hit a gap in coverage in the Medicare prescription-drug benefit known as the "doughnut hole."

If the health bill fails, some backers said, it could be years before industry groups join lawmakers to give it another try.

"If health care reform does not get enacted this year, I don't see much likelihood that health care reform will be considered seriously for many years," said Ron Pollack, the executive director of the consumers group Families USA.

Insurers also pledged to help the overhaul effort. In exchange for a requirement that most Americans be required to purchase health coverage, insurers offered to drop practices such as denying coverage to individuals who have pre-existing medical conditions and canceling policies when enrollees get sick.

AARP supported the House of Representatives Democratic health bill for several reasons, including its planned elimination of the "doughnut hole" in the Medicare prescription-drug benefit, as well as the creation of a long-term care insurance program and better coverage of preventive services in Medicare. AARP also supported other provisions, including the bill's subsidies, to help people younger than 65 buy insurance.

Some of these groups fear that if the overhaul falters, their members might end up on the losing end.

"Our hope is that reform would get us to a less costly health care system" that also would be more efficient, said Richard J. Umbdenstock, the president and chief executive officer of the American Hospital Association. If an overhaul doesn't pass, however, "the prospect of raw cuts comes back."

(Kaiser Health News, an editorially independent news service, is a program of the Kaiser Family Foundation, a nonpartisan health care policy research organization that isn't affiliated with Kaiser Permanente.)

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