What Does Obama’s Budget Hold for Health Reform?

by Dan Diamond, California Healthline Contributing Editor
What Does Obama’s Budget Hold for Health Reform?

President Obama's proposed budget would ramp up federal spending on the health reform law in an effort to help carry out its provisions. The proposal has renewed GOP criticism that the White House is overextending the government's role in health care and is pushing off hard choices on health costs.

Through words and action, President Obama set expectations that he was going to make “hard choices” on the federal budget — and health care spending was in his sights.

The president’s deficit commission last year called for dramatic changes to the Medicare and Medicaid programs. At his State of the Union address last month, Obama pledged to reduce entitlement spending.

However, the president’s fiscal year 2012 budget request largely leaves health care spending untouched. Despite a “striking” cut to HHS — the agency’s first spending reduction in its 30-year history — the proposal generally signals that Obama is pushing forward on health care reform despite efforts to strike down the law in federal court and on the House floor.

Meanwhile, White House opponents are seizing on a particularly garish figure — $1 trillion — which represents two potential weak points for the Obama administration. Under the president’s proposal, the federal budget would run a deficit at least that large for the fourth straight year. Updated 10-year spending projections on the federal health reform law also may push the deficit beyond that threshold, prompting more criticism of the overhaul’s spending.

Overhaul Efforts Largely Protected

The president’s proposal allots $79.9 billion for HHS, about $1.4 billion less than its estimated 2011 spending and $400 million less than Obama’s budget request last year. Many health-related agencies within the department saw budget freezes or cuts, but efforts to carry out the federal health reform law remain well-funded.

About $465 million of the HHS budget is tied to implementing the overhaul, with specific funding for:

Other aspects of Obama’s proposal also take their origins from the health reform debate. The budget ramps up medical malpractice reform efforts by directing $250 million to the Department of Justice for supporting state-level overhauls. In comparison, the health reform law allocated just $25 million in grants to malpractice-reform pilot programs.

In one of the more controversial elements of his proposal, Obama would freeze Medicare payment cuts to physicians, after legislators failed to include a “doc fix” in the health reform law.

The proposal also scales back — but does not completely eliminate — the 1099 tax-reporting requirement in the health reform law. Under the proposal, businesses, not-for-profit groups and government offices would have to file 1099 forms with the Internal Revenue Service only when they purchase $600 or more in services from another business in a given year. In contrast, the health reform law requires businesses to file the forms for both goods and services over $600. Both parties previously pledged to strike the 1099 requirement from the health law, although efforts to repeal the provision have stalled in Congress.

Meanwhile, the estimated cost of the reform law, which the Congressional Budget Office projected to be less than $1 trillion across a decade, is bound to increase this year, as analysts account for another year of the law’s full operation.

Reaction Mixed in Health Care, Political Sectors

Beyond the immediate reaction by lobbyists and industry sectors — with health care groups applauding or decrying the budget based on how it allocates funds to their causes — conservative critics like James Capretta, a fellow with the Ethics and Public Policy Center, suggest that the plan is a “profoundly unserious budget” that doesn’t make necessary changes to rein in entitlement spending or improve health care.

For example, the IRS proposal has come under fire from Sen. John Barrasso (R-Wyo.), who says that more funding for the tax agency won’t “make care better or more available for anyone.” The decision to again push off addressing Medicare physician pay has renewed criticism that legislators will fail to make tough spending decisions that are needed to fund the health reform law. Writing in The Atlantic, Megan McArdle describes the delayed doctor payment cuts as “ever-more desperate health care budget gimmicks.”

In response, The New Republic Senior Editor Jonathan Cohn defends Obama’s proposal by suggesting that the most feasible plan to control health costs would spread the pain while seeking to encourage higher-quality care and lower costs — or “basically what the [current] health law does.”

What Comes Next

House Republicans now craft their own version of the budget, which is expected in April. GOP leaders reiterated this week that their plan will include entitlement reforms; House Budget Committee Chair Paul Ryan (R-Wisc.) has floated transformative proposals, like converting Medicare into a voucher program.

However, political reality may intrude. Major changes to Medicare or Social Security tend to prompt senior citizens to near revolt, and a dramatic overhaul of entitlements could be untenable for the GOP. A broad split between the parties could lead Congress to never enact a FY 2012 budget — just like last year, which laid the groundwork for a potential government shutdown this year.

Meanwhile, Obama’s proposal may just be an “opening bid” for White House-GOP negotiations on health care later this year, against the backdrop of a larger battle over federal funding. Leaders of both parties this week said they were open to a “serious conversation” on key budget concerns. Alice Rivlin, a former Federal Reserve official and member of Obama’s debt commission, expects Obama to use the lack of changes to entitlement programs as a “tactical move” to seek compromise.

Upcoming issues of California Healthline will continue to track the budget battle and how it affects the federal health reform law. Meanwhile, here’s a quick look at other stories making news around the nation.

In the Courts

On the Hill

In the States

Implementing the Overhaul

 

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