Taxes On Rich Would Help Pay For Health Care Plan

President Barack Obama is offering a preview of his plans for making the health care system more efficient and expansive.

He would pay for a good portion of it by raising taxes.

Nearly half of the $634 billion Obama seeks to begin improvements to the health care system would come from limiting itemized deductions for families making over $250,000 per year.

The administration hopes to glean more than $300 billion over 10 years through this provision, projected to kick in by 2011.

Under Obama's plan, the rest of the health care money — around $340 billion — would come from reducing government health care spending.

The $634 billion gathered from taxes and reductions in health spending would be set aside in a new dedicated health care reserve fund, which the administration says is a "first crucial step" toward comprehensive health reform. The president says he is committed to working with Congress to find additional resources.

"The administration will explore all serious ideas that, in a fiscally responsible manner, achieve the common goals of constraining costs, expanding access and improving quality," the budget document says.

House Minority Leader John Boehner (R-OH) says Republicans want to work with the administration on a responsible budget. But he says "increasing taxes during a recession would be disastrous for the economy. Herbert Hoover tried it, and we all know where that led."

Congressional Democrats make no apologies for the tough language in the budget proposal, or the difficult choices ahead.

"This is a serious document for serious times, one that no longer sacrifices long-term needs to the politics of the moment," says Majority Leader Steny Hoyer (D-MD).

Specifically, Obama's health budget calls for significant cuts to payments the government makes to health insurers, hospitals and physicians.

Many of these proposed cuts are no surprise to providers, and some are positive about the direction of the overall proposal.

"I think in terms of the general flow, that this is clearly in the right direction. It's making a statement about coverage and health reform, and we're supportive," says Charles "Chip" Kahn, president of the Federation of American Hospitals.

The budget proposal calls for a restructuring in the way the government pays hospitals, with an increased emphasis on the care patients receive after they are discharged.

"Hospitals with high rates of readmission will be paid less if patients are readmitted to the hospital within the same 30-day period," the budget document says, saving $26 billion over 10 years.

The plan would also tie Medicare payments to hospital performance on specific quality standards by expanding the Hospital Quality Improvement Program, saving $12 billion over 10 years.

Obama would reduce payments for private health insurers who offer managed care plans to Medicare beneficiaries. Studies have shown that the government spends 14 percent more on these HMOs than it does in regular fee-for-service Medicare.

The administration projects $175 billion in savings over 10 years by reducing these payments, as well as a reduction in premium costs for seniors and the disabled who buy into these plans.

While health insurers applauded the president for laying out a bold plan that prioritizes health care, the industry's trade association, America's Health Insurance Plans expressed concern about the proposed cuts to their payments.

"A cut of this scale would jeopardize the health security of more than 10 million seniors enrolled in Medicare Advantage and would turn back the clock on innovative payment incentives to improve the quality of care that patients receive," says Karen Ignagni, AHIP president and CEO.

In the plan, Obama also calls for a revision to the physician payment system in Medicare, long criticized for its focus on quantity over quality. The current plan faces major payment cuts in the future if left untouched.

"All Americans should have health insurance and high quality, affordable health care, regardless of employment or health status," says American Medical Association President Nancy H. Nielsen. "Proposed investments in prevention and wellness, quality improvements and training to address health professional work-force shortages are down payments on a healthier nation," she adds.

The administration proposal also seeks to reduce waste and fraud in the system, accelerate approvals of cheaper copies of high-tech drugs, and close several loopholes in the drug patent system, which have delayed patient access to cheaper medicines.

It would also lower drug costs in the Medicaid program for the poor by demanding better discounts from drug companies.