Obama lays out plan for cutting Medicare, Medicaid

By Tami Luhby, senior writer


NEW YORK (CNNMoney) -- President Obama unveiled a plan Wednesday to cut Medicare and Medicaid costs, but without slashing benefits for seniors and the needy.

The proposal, which would save $340 billion over the next 10 years, relies on controlling prescription drug costs and overhauling how the federal government funnels Medicaid money to states. It also gives more cost-cutting power to an advisory board created by last year's health care reform law.

The savings would grow to $480 billion by 2023 and $1 trillion in the following 10 years, according to the White House.

Obama chastised Republicans for shifting the health care burden to the elderly and the poor. A plan put forth last week by Representative Paul Ryan, a Republican who chairs the budget committee, would reduce the government's health care obligations by asking seniors to pay more for their health coverage and cutting federal funding for Medicaid.

"Let me be absolutely clear: I will preserve these health care programs as a promise we made to each other in this society," the president said in a speech laying out his plan to cut $4 trillion from the national debt.

Details on just how the president would rein in costs remain sketchy. But it would leverage Medicare's purchasing power to lower prescription drug costs and bring generics to the market faster. It would also more closely manage those who prescribe and those who use a lot of drugs. This is projected to save $200 billion over 10 years.

Also, the plan would replace the federal Medicaid matching formula, which currently varies by service, with a single rate. It would reward states for efficiency, but automatically increase if a recession sends enrollment soaring. These are among the president's proposals for Medicaid, which the White House says would save $100 billion over 10 years.

Many states are already trying to reduce drug and administrative costs, said Debra Miller, director of health policy for the Council of State Governments.

The president's plan would also bolster the Independent Payment Advisory Board, which was created by health reform to keep Medicare costs under control. The president called for allowing the board to make recommendations to Congress on how to reduce the rate of Medicare's growth earlier in the process and give them more enforcement mechanisms.

And it would give the panel additional tools to improve care, such as promoting prevention services.

Obama also wants to improve patient safety and avoid complications in hospitals, which the White House says will save $50 billion in Medicare costs and billions more in Medicaid over the next 10 years.

Just where the president's proposal goes remains to be seen. The plan advances Obama's health care reform push, which congressional Republicans are bent on repealing.

"It's building on and reinforcing what the administration pursued in the Affordable Care Act," said Diane Rowland, executive vice president at the Kaiser Family Foundation. "It focuses on how we squeeze more value out of our health care system and less on putting a budget cap there." To top of page

Frontline troops push for solar energy
The U.S. Marines are testing renewable energy technologies like solar to reduce costs and casualties associated with fossil fuels. Play
25 Best Places to find rich singles
Looking for Mr. or Ms. Moneybags? Hunt down the perfect mate in these wealthy cities, which are brimming with unattached professionals. More
Fun festivals: Twins to mustard to pirates!
You'll see double in Twinsburg, Ohio, and Ketchup lovers should beware in Middleton, WI. Here's some of the best and strangest town festivals. Play
Index Last Change % Change
Dow 17,055.48 -42.97 -0.25%
Nasdaq 4,590.56 10.29 0.22%
S&P 500 2,000.41 -2.96 -0.15%
Treasuries 2.42 0.08 3.24%
Data as of 3:02pm ET
Company Price Change % Change
Apple Inc 103.14 0.64 0.62%
Bank of America Corp... 16.16 0.07 0.45%
Staples Inc 12.77 1.09 9.33%
Facebook Inc 76.04 1.22 1.63%
Intel Corp 34.54 -0.38 -1.07%
Data as of 2:47pm ET

Sections

Nike flexes its huge dollar advantage by signing Durant to a $300 million endorsement deal that trumps $285 million offer from Under Armour More

If approved by Los Angeles city council, the plan could raise wages for 567,000 workers by 2017. More

The latest celebrity photo hack shows your digital life doesn't end at your phone. If your stuff lives on "the cloud," you don't control the data. More

If approved by Los Angeles city council, the plan could raise wages for 567,000 workers by 2017. More

A scam where fraudsters impersonate IRS agents has now stolen $5 million from taxpayers, and this woman - who lost her entire life savings -- is just one of its victims. More

Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.