Health Care Cuts Are Coming: Here's Where Liberals Say You Can Slice

By Julie Rovner

Published November 14, 2012 at 4:55 PM CST

Two new studies and a proposed class-action lawsuit settlement all have the potential to change dollar signs as lawmakers address the impending fiscal cliff.

A liberal think-tank closely allied with the Obama administration is proposing a health care spending plan it says could save hundreds of billions of dollars in entitlement spending without hurting middle- and low-income patients.

The plan from the Center for American Progress comes as Congress prepares for a battle royal over the so-called fiscal cliff. That's the combination of tax increases and spending cuts that happen automatically unless lawmakers and the president can reach a deal before the end of the year.

Democrats have been demanding higher taxes on the rich, while Republicans say they won't budge without big changes to programs like Medicare and Medicaid.

Senate Minority Leader Mitch McConnell didn't mince any words in his first floor speech of the lame-duck session Tuesday afternoon: "Republicans like me have said for more than a year now that we're open to new revenue in exchange for meaningful reforms to the entitlement programs that are the primary drivers of our debt."

And meaningful reform is exactly what the authors of the CAP plan said they are proposing.

"If entitlement reform is simply code for dismantling Medicare and Social Security, we're not at the table, and we should oppose that with everything we've got," said Ezekiel Emanuel, a senior fellow with the group who helped put the proposal together. "On the other hand," he added, "if entitlement reform is, 'We're going to transform the system, modernize it so it can deliver high-quality, lower-cost care,' that's where we are. And that's what we think we've got here."

Now, the Center for American Progress isn't just any group. It's considered something of the White House's reserve corps. Emanuel, for example, is the brother of former White House Chief of Staff Rahm Emanuel and a former White House health staffer himself. CAP President Neera Tanden is also a former White House health staffer.

And this new plan is notable not just for potential savings of a half-trillion dollars but for what some of those savings are. They include many things that build on savings included in the Affordable Care Act, like cutting waste and encouraging more efficient care, as well as lowering payments to some providers. But there are also some controversial items. Like asking wealthier Medicare beneficiaries to pay more out of pocket for their care. And limiting the tax-free status of health insurance for people who earn more than $250,000 a year.

"These are not easy proposals," said Tanden. "They are definitely not easy proposals for the progressive side."

Indeed, tampering with the so-called tax exclusion for employer-provided health premiums in even the most minor way in the Affordable Care Act caused some major heartburn for organized labor, whose members tend to negotiate for more generous, tax-free benefits rather than taxed wage increases.

But they are things that both liberal and conservative economists agree would start to rein in health spending as 78 million baby boomers start to migrate onto Medicare. And Emanuel says they weren't included in the plan just to try to win Republican votes for a budget deal.

"The [U.S.] health care system is the fifth-largest economy in the world — $2.8 trillion. It's as big as the French economy," he said. (It's slightly bigger, actually.) "You're not going to transform it overnight. You need, however, to put in place the structures that will transform it over a decade. That's what we've tried to do, and I think this is the legacy for the president."

But will the plan really impress any of those Republicans who are clamoring for entitlement reform?

Early indications suggest not.

"The idea that you can shoot at everyone in a crowd and not hit a beneficiary is ridiculous," scoffed Tom Miller, a resident fellow at the conservative American Enterprise Institute and a former Republican congressional staffer. Miller suggests that by cutting payments to health care providers, the plan can't help but result in some care disruptions for patients.

"It's just a continuing combination of further payment reductions — relatively arbitrarily," he said. Rather than letting the market determine how the health care system works, "you're going to see what "command and control" really looks like for the health care system," he said.

And there are some places even the liberal Center for American Progress wouldn't go. For example, raising Medicare's eligibility age to 67 — as some have proposed — is a nonstarter.

"We believe raising the Medicare age simply shifts costs to states, seniors and private employers," Tanden said.

Likewise, the plan rejects most cuts to the Medicaid program. Reducing funding for Medicaid right now "would undermine the very strong case the administration is making each and every day for governors to ... do their Medicaid expansions" under the Affordable Care Act, Tanden said.