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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

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