The Tension in the Obama Administration's Approach to Health Care Cost Cutting


Credit: National Institutes of Health Library / Foter.com / CC BY-NC-SA

The sequestration process is revealing an odd tension in the Obama administration's approach to paying for health care. 

You can see it in the administration's conflicted approach to Medicaid: The White House has been increasingly adamant in its refusal to allow any cuts to the joint federal-state program for the poor and disabled. In 2011, Jack Lew, the former White House Chief of Staff and budget head, somewhat famously demanded that the program be exempt from the sequester. And more recently the White House has declared that it will no longer discuss any cuts to Medicaid — even cuts administration officials had previously said indicated they would consider.

Yet at that same time, the administration has been waging a fierce legal battle to preserve the rights of states to cut Medicaid reimbursements as much as state officials want. The administration's official position is that "there is no general mandate under Medicaid to reimburse providers for all or substantially all of their costs." The White House is very clear, in other words, that states should be able to cut the program's payments as they see fit.

You can see a related tension in the administration's approach to Medicare, the federal health program for seniors. Unlike Medicaid, Medicare is not exempt from sequestration; it'll face a 2 percent reduction, which will amount to about $11 billion next year. Health and Human Services Secretary Kathleen Sebelius, noting that the cuts will hit health and drug plans as well as other providers, has warned that this will "result in billions of dollars in lost revenues to Medicare doctors, hospitals, and other providers, who will only be reimbursed at 98 cents on the dollar for their services to Medicare beneficiaries." And the White House doesn't seem too pleased either: The Office of Management and Budget's report on sequestration complains that GOP alternatives to the spending reductions are wrong partly because they "fail to address Medicare sequestration."

Yet the White House's whole theory of Medicare reform is built around cutting reimbursements to health providers: When President Obama talks about modestly reforming Medicare without cutting benefits, that's exactly what he means. Obama has repeatedly called for cutting payments to drug manufacturers, and ObamaCare includes more than $700 billion in cuts to Medicare, which are distributed amongst the various big players in the health industry. The Medicare cost-control board that ObamaCare sets up is expected to focus heavily on reimbursement cuts.

The frictions here are revealing: The administration wants to protect Medicaid from any cuts, but it also knows that the combination of squeezed state budgets and the coming Medicaid expansion mean that some cutbacks will inevitably be necessary. It complains about the impact of relatively small cuts to Medicare providers, but also plans for hundreds of billions worth of reimbursement reductions to those same organizations.

In other words, the administration is being evasive and trying to have it both ways: It wants to allow Medicaid to be cut, but doesn't want to do the cutting. It wants to cut Medicare payments, but also gripe about problems that might result from other Medicare reimbursement reductions. It wants to cut federal health spending and reform the entitlement system. But not really.