Obama to propose Medicare and Medicaid cuts

September 13, 2011 11:04 pm

Obama to propose Medicare and Medicaid cuts

By Stephanie Kirchgaessner and James Politi in Washington

Barack Obama is expected to lay out a plan next week that would cut several hundred billion dollars from Medicare and Medicaid, the large government healthcare schemes for the elderly and the poor, as part of a pitch to cut future deficits by more than $1,500bn.

Senior White House officials said the US president would base a detailed blueprint for fiscal reform, which is to be delivered on Monday, on an earlier speech he delivered in April on deficit reduction.

The announcement could create tensions within the Democratic party, which has traditionally staunchly defended Medicare. Mr Obama’s fiscal proposal will be released just one week after the president unveiled a separate plan to raise more than $450bn to pay for a jobs bill that senior officials said would be the president’s singular focus in coming weeks.

The American Jobs Act, a mix of tax cuts for workers, infrastructure projects and aid for states, has won a lukewarm reception among Republicans on Capitol Hill, even though Mr Obama’s plan to pay for the legislation – by cutting tax deductions on mortgage interest and charitable donations for households making more than $250,000 and raising tax on some corporations – has been panned by senior Republican leaders.

“We see permanent tax increases put into effect in order to pay for temporary spending. I just don’t think that’s going to help our economy the way it could,” Mr Boehner said.

In an event to sell the job proposal to voters in Ohio on Tuesday, Mr Obama, who is facing record low poll numbers, sounded more like the confident candidate he was in 2008 than the beleaguered president he has become, replacing his once-popular mantra of “yes we can” with a new refrain: “pass this bill”.

Although the president’s jobs plan is not directly linked to his long-term plan for deficit reduction, the two issues are likely to become intertwined in the next few weeks, as a special “super committee” of lawmakers begins negotiations on a deal to find at least $1,200bn in savings. Although the White House has said it wants Congress to act on its jobs proposal as soon as possible, the proposal, or parts of it, could be passed as part of a broader measure agreed by the super-committee.

The president’s fiscal plan is also expected to draw on options the White House had put on the table in talks with John Boehner, House speaker, over a “grand bargain” on fiscal reform. Those discussions eventually fell apart.

During those discussions in July, the White House had agreed to $425bn in cuts to Medicaid and Medicare – with $150bn extracted from Medicare providers such as doctors and hospitals, $150bn coming from Medicare beneficiaries, and $125bn coming out of reforms to Medicaid, administration officials said at the time. Among the menu of policy ideas to reach those targets were an increase in the eligibility age for Medicare.

Allowing Medicare more flexibility to negotiate drug prices with pharmaceutical groups and preventing special deals delaying the entry of generic drugs into certain markets could also be part of the plan.

Mr Obama’s plan could also feature a change in the way the US government measures inflation, switching to a less generous chained-consumer price index. The biggest impact of this measure – which could save between $250bn and $300bn over ten years – would be felt by recipients of Social Security, the retirement scheme.

During the failed July talks, the White House agreed to put that change in place starting in 2015, but with protections for low-income workers.

The administration has also signalled there would be “discussion” of tax reform in Mr Obama’s recommendations to the committee – particularly on the corporate side. Business lobby groups are pushing the administration to propose a target for a lower corporate tax rate compared to the current 35 per cent level, which would then open the door to an agreement to eliminate subsidies and tax breaks for businesses.

Senior administration officials on Tuesday said they believed the White House has a big advantage over Republicans in the jobs debate, even though they recognise that both the president and Republicans in Congress were diminished in the eyes of voters following the protracted debate this summer over an increase in the debt ceiling.

The officials suggested that, although Mr Obama had his hands tied in the fight over extending US borrowing authority because he was not prepared to allow the nation to default on its debts, the president and his team are now free to drive a hard bargain and aggressively push for their jobs plan since Republicans no longer have the significant leverage over the White House they did this summer, when the debt ceiling issue was still in limbo.