Obama's Health-Care Plan: What It Means for You

More than $1 trillion will be needed to pay for the Obama administration's ambitious health-care reform plan. To come up with the money, the president has pledged to trim fat from the Medicare and Medicaid programs. But when all is said and done, it may be consumers who end up paying the price.

Over the next 10 years, the government hopes to save $622 billion by reducing overpayments to private insurers and curtailing fraud in the Medicare and Medicaid programs. Over the weekend, President Obama unveiled a proposal on how nearly half of that savings – $313 billion – can be attained. The plan is vague at best, leaving the details to be hammered out by Congress in the following months.

Even without the specifics, it's clear that health-care providers will take a hit, says Julius Hobson, senior policy adviser at the law firm Bryan Cave and a former director of Congressional affairs at the American Medical Association. Hospitals will receive less funding from the government to pay for providing care to the uninsured, for example, while pharmaceutical companies may have to start accepting lower prices for their drugs.

How doctors and hospitals will react remains to be seen, but reducing their payments will inevitably impact patients, says Paul Keckley, executive director of the Deloitte Center for Health Solutions. Hospitals, for example, are going to be under “intense pressure to operate more efficiently and to operate at a higher level of safety,” he says, and may stop offering some services.

Here are some of the cuts the Obama administration suggests and how they may impact consumers:

Proposal 1: Lower the annual rate of pay increases for Medicare

Projected savings: $110 billion over 10 years

The government plans to reduce the rate at which Medicare payments to hospitals and other health providers increase each year. The rationale behind these cutbacks is that hospitals continue to reduce their expenses through productivity measures like negotiating better prices with vendors. Instead of letting health providers keep those savings – i.e., the extra dollars that they receive from Medicare -- the government will simply pay them less and use the money to offset the cost of its health-care reform. “The hospitals have been doing everything they could to improve their costs,” says Keckley. “Now the government is taking those savings.”

What it means for you: Forced to improve their profitability, hospitals may close certain units or clinical programs that operate at a loss, Keckley says. Typically, such programs serve Medicare or Medicaid patients, including pediatric practices, neonatal intensive-care units and burn centers. As a result, some patients, including many Medicare recipients, may have to travel further to receive certain types of care. “Most people in a community think a good hospital ought to do most everything,” Keckley says. “But looking down the road, that’s not possible.”

Proposal 2: Reduce hospital subsidies for treating the uninsured

Projected savings: $106 billion over 10 years

Hospitals that treat a large number of uninsured patients receive federal government subsidies from Medicare/Medicaid Disproportionate Share Hospital (DSH) programs. Under Obama's plan, these facilities will receive fewer government subsidies as the new health-care plan kicks in and the number of uninsured patients decreases. The expectation is that so many Americans will get insured under the new plan that these hospitals eventually won't need any subsidies at all. The government plans to phase out DSH programs over the next 10 years.

“The idea is, you’re taking money with one hand, but you’re bringing it back to the hospital with the other,” says Paul Precht, director of policy at the Medicare Rights Center. The key to making this part of the plan work, however, is to make sure that a patient seeking treatment in these hospitals receives affordable health coverage before any funding is withdrawn, Precht says.

What it means for you: It could go one of two ways. With reduced payments, some hospitals will be forced to start operating more efficiently, says Mary Johnson, social security and Medicare policy analyst at the Senior Citizens League, a nonprofit advocacy group for retirees. However, on the other hand, hospitals may shift those costs to the patients and their supplemental insurers would end up footing the bill, she says.

Proposal 3: Better prices for Medicare Part D drugs

Projected savings: $75 billion over 10 years

Under the proposed plan, the government will negotiate the prices that Medicare pays for drugs. It will also reduce reimbursements for beneficiaries who qualify for both Medicare and Medicaid.

Currently, drug makers are required to sell drugs at a discounted price to the Medicaid program, but not to the Medicare program. When in 2006 Medicaid recipients started getting drug coverage through the Medicare Part D program, that discount was eliminated and the pharmaceutical companies made a profit, says Precht. “The idea is to get those discounts back to the same level they were in 2005,” he says.

What it means for you: If the government negotiates lower drug prices for Medicare, beneficiaries may see an improvement in the prices they pay, says Bryan Cave’s Hobson. But with few specifics known so far on how the savings will be attained, that outcome is far from certain. If the government reduces reimbursements to pharmaceutical companies, that could just mean the public will make up the difference by paying more out of pocket, says the Senior Citizens League’s Johnson.