WASHINGTON – President Barack Obama will propose a combined $634 billion in upper-income tax increases and cuts to government health spending over 10 years to fund a new program aimed at getting health coverage to all Americans, a senior administration official told the Wall Street Journal Wednesday.
The spending cuts are aimed not just at raising money for the new program but also at curbing health-care spending overall, something that the president and many experts believe is critical to the nation’s long-term financial health. The cuts would affect a range of interests, including managed care companies, prescription drug manufacturers and hospitals.
The proposed tax change would limit the deductions available to people in the highest income tax brackets.
The proposed cuts are being offered as part of the president’s budget blueprint, which is set to be released Thursday, and is meant to signal Obama’s commitment to fulfilling his pledge to enact comprehensive health-care legislation this year. These proposals all must be approved by Congress.
The budget will contain few details about what the president wants to see included in his health-care expansion plan, though he presented a fairly detailed plan during the presidential campaign last year. The administration plans to release only general guidelines for action on Thursday, with more details expected to be announced during a White House summit on health care next week.
However, the budget is focusing on where the money will come from to pay for Obama’s proposed health initiatives.
The senior administration official who previewed the announcement acknowledged that $634 billion wouldn’t be enough to pay for the ambitious health-care expansion that Obama and many Democrats envision. That project is estimated to cost more than $1 trillion over 10 years.
Rather, the official described the proposed $634 billion as a “down payment” and said the administration would work with Congress to find the rest.
Half the money would come from savings to the health-care system, and half from a new tax increase.
The tax increase is a new proposal from Obama, and would limit deductions for filers in the 33 percent and 35 percent tax brackets.
Under current law, taxpayers who itemize calculate their deductions based on their income tax bracket. A taxpayer who pays a 35% rate on his income may deduct 35% of various expenses — such as mortgage interest or charitable contributions — from his taxable income.
Under the Obama proposal, these deductions would be limited to a maximum of 28 percent even for taxpayers paying higher tax rates.
The more profound changes would be on the health-care spending side, as the administration attempts to tame spiraling costs.
The biggest chunk of money to be cut, $177 billion over 10 years, would come from changing the way that private managed care plans participating in Medicare are paid. Under current law, payments in the Medicare Advantage program are set by a formula. The result is that private companies, on average, are paid 14% more to care for a patient than the government would normally spend on that person’s care through the traditional Medicare program.
The Obama plan would have private plans bid to offer coverage in a given geographic area; insurers would then be paid based on an average of the bids. The administration estimates that the result would be that private plans would be paid about the same as the government normally spends per participant.
The administration will also propose a new measure to make generic drugs available more quickly. It would also change the formula for how brand-name drugs are paid for through the Medicaid program.
Obama will also propose new ways to tie payments to performance in Medicare for both hospitals and doctors, an initiative aimed at improving quality as well as reducing cost.
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