As part of a plan to reduce the federal budget by more than $3 trillion over 10 years, President Obama has proposed $320 billion in cuts to Medicare and Medicaid. Most of the savings ($248 billion) would come by slowing the projected growth of Medicare in the coming decade, according to the White House. The remaining $72 billion would be shaved from Medicaid and other health programs.

Details of the plan include:

• Pharmaceutical companies would be required to lower their rates to some beneficiaries. The change would allow the federal government to receive the same brand name and generic rebates for low-income Medicare patients as are provided to Medicaid beneficiaries. This proposal accounts for the single biggest savings for Medicare, an estimated $135 billion over 10 years starting in 2013.
• New beneficiaries would be required to pay higher deductibles. The current, inflation-adjusted deductible ($162/year) would increase by $25 in 2017, 2019, and 2021.
• Medicare premiums would increase by approximately 30 percent for new beneficiaries who buy private insurance to help fill gaps in Medicare. The protection afforded by Medigap policies “gives individuals less incentive to consider the costs of health care and thus raises Medicare costs,” according to the White House.
• Starting in 2017, some new beneficiaries would be required to make co-payments for home health care, which is now exempt from such charges. The co-payment would be $100 per episode (defined as a series of five or more home health visits not preceded by a stay in a hospital or a skilled nursing home).
• Higher-income Medicare beneficiaries would pay higher premiums for Medicare Part B and Medicare prescription drug plans.
• Medicare payments to nursing homes, home health agencies, and rehabilitation hospitals would be reduced. Medicare payments to nursing homes with large numbers of hospitalized patients (because the patients did not receive appropriate care in the nursing home) would be reduced even further.
• Doctors would have to seek approval from Medicare for the most expensive imaging services.
• A revised formula for calculating Medicaid payments to states would save a projected $15 billion over 10 years (but would shift those costs to the states).
• Over the next decade, $3.5 billion would be cut from a prevention and public health fund created by the 2010 health care law.
• Medicare would cut payments to hospitals and other providers for bad debts that result when beneficiaries fail to pay deductibles and co-payments.

The President’s proposed savings would represent less than 3 percent of what the government expects to spend on Medicare and Medicaid in the next 10 years, but nevertheless generated protest from many quarters. The drug companies, through the industry group Pharmaceutical Research and Manufacturers of America (PhRMA), lashed out against what it called “price controls” for the Medicare prescription drug plan (Medicare Part D).

Senior groups also denounced the plan. “AARP reiterates its strong opposition to any proposals that would raise costs or cut the hard-earned Medicare benefits that millions of seniors depend upon every day for their health and retirement security,” said Nancy LeaMond, executive vice president of AARP.

“The cuts to the Medicaid program in the president’s proposal … shifts the burden to states and ultimately onto the shoulders of seniors, people with disabilities, and low-income families who depend on the program as their lifeline,” said Ron Pollack, executive director of the consumer advocacy group Families USA.

The American Hospital Association (AHA) also criticized the Obama proposal, saying that reduced Medicaid and Medicare provider rates would lead to 200,000 job cuts by 2012 for hospitals and businesses they support. Rich Umbdenstock, AHA president and CEO, called the president’s plan, “The wrong prescription to create a healthier America and sustain job growth in a sector of the economy that is actually adding jobs.”

Medicare and Medicaid insure more than 100 million people, and account for nearly a quarter of federal spending.