Obama health plan opens tough negotiation

AP - By RICARDO ALONSO-ZALDIVAR, Associated Press Writer


WASHINGTON – President Barack Obama's prescription for the nation's ailing health care system comes with Medicare cuts and tax hikes — usually poison pills that doom any overhaul effort in Congress.

But the budget Obama proposed Thursday is not a finished blueprint for overhauling health care. Rather it's the opening bid in a tough negotiation. Anybody who's been in a bargaining session knows you never end up with your opening bid.

Obama is asking Congress: If you're going to cover an estimated 48 million uninsured Americans in the world's costliest medical system, how do you pay for it?

Obama's plan would set aside $634 billion over 10 years in a major effort to cover all Americans — a goal that could cost more than $1 trillion. Half the money would come from tax increases on upper-income earners; the other half from cuts to Medicare and Medicaid. Private insurance plans serving Medicare seniors would take the biggest hit, but hospitals, drug companies and home health agencies also face cuts.

Republicans and fiscally conservative Democrats are sure to disagree with Obama's specifics, but they may quietly applaud his determination to pay for health care reform, instead of adding to the deficit.

"This is a serious effort to get the process moving," said Mark McClellan, a doctor and health economist who ran Medicare for former President George W. Bush. "The specific financing proposals are going to have a very tough time."

Obama's approach is a conscious departure from the path former President Bill Clinton took in the 1990s. Clinton's 1,300-page health care bill tried to answer every question and ultimately went nowhere. Obama is asking Congress to fill in the blanks.

"He's outlining these cuts as examples of places where savings can be accrued," said Christine Ferguson, a health policy professor at George Washington University. "You put those on the table, and if people want to have this discussion, they have to propose alternatives."

Whether that dialogue succeeds depends not just on Obama, but on Congress and interest groups representing insurers and doctors, hospitals and drug companies, consumers and small business.

Clinton's top priority was to get everybody covered quickly. Obama has framed the problem differently, focusing on how to slow rising costs, so that everybody can eventually be covered.
"What the president is doing is bold, but it's not overreaching," said economist Robert Reischauer, president of the Urban Institute research center. "The administration is coming to grips with the reality that this will cost a lot of money, and it's committed to paying for it."
The tricky part is in the details.

For example, more than half of Obama's spending cuts would come from Medicare managed care plans. The private plans cost the government 14 percent more on average than care for seniors in traditional Medicare. That translates into lower out-of-pocket costs for seniors, who in a bad economy have been flocking to the plans, increasing enrollment to about 10 million.

"People are flooding into the program," said Dan Mendelson, president of Avalere Health, an information company serving government and the health care industry. "I don't think cuts of this magnitude ultimately are going to be palatable to Congress."

Obama would replace the current payments with a competitive bidding system estimated to save $177 billion over 10 years. That sent insurance company shares skidding Thursday on Wall Street. But some market analysts said there may be a silver lining: While competitive bidding could decrease profit margins, it might generate higher revenues for insurers if seniors keep signing up.

America's Health Insurance Plans, the insurance industry trade group, wasn't ready to leave the bargaining table.

While warning that Obama's cuts would "jeopardize the health security" of seniors, the group's president, Karen Ignagni, said insurers "are committed to doing our share" to expand coverage.