US President Barack Obama's delayed FY2014 budget proposal, to be unveiled on April 10, is expected to include cuts to Medicare totalling around $400 billion over the next 10 years, achieved partly by reduced payments to drugmakers.
The savings to Medicare - the federal health programme for people aged 65 and over and some people with disabilities - were originally included in the deficit reduction offer made by the President to House Speaker John Boehner last December, which envisages a $1.8 trillion reduction in the national deficit over a decade. The measures would also include requiring wealthier Medicare enrolees to pay higher premiums, according to a leaked White House budget briefing paper.
Pres Obama's budget plan is also forecast to include major cuts to social security but no major reductions to Medicaid, the federal/state health programme for people on low incomes. In return, he is expected to seek Republican support for new tax increases on the wealthiest US individuals and corporations.
The budget proposal is expected to revisit the statements on payments to drugmakers which President Obama made in his State of the Union address in February. Currently, around nine million seniors who are eligible for coverage by both Medicare and Medicaid receive their drugs through Medicare's prescription drug programme - known as Part D. However, Part D prices are negotiated by private insurers and drugmakers and are frequently much higher than the prices paid by Medicaid, whose discounts are set by law.Before the Part D legislation was enacted under the Republican administration of George W Bush in 2003, these so-called "dual eligibles" received their drugs through Medicaid.
Together, the Medicare and Medicaid programmes account for 25% of the federal budget, and in his State of the Union speech, the President had pointed out that the biggest driver of the US's long-tern debt is the rising cost of healthcare for its ageing population. "Those of us who care deeply about programmes like Medicare must embrace the need for modest reforms, otherwise our retirement programs will crowd out the investments we need for our children, and jeopardise the promise of a secure retirement for future generations."
He pledged: "we'll reduce taxpayer subsidies to prescription drug companies and ask more from the wealthiest seniors. We'll bring down costs by changing the way our government pays for Medicare because our medical bills shouldn't be based on the number of tests ordered or days spent in hospital - they should be based on the quality of care that our seniors receive."
The law currently does not allow the Department of Health and Human Services (HHS) to negotiate drug prices for Medicare. During his election campaign in 2008, the President had declared his support for empowering the Department to do so, although the proposal did not make it through to his final Affordable Care Act (ACA), which he signed into law on March 23, 2010.
However, the Center for Economic and Policy Research (CEPR) recently reported that enabling Medicare to negotiate drug prices "like other wealthy countries" could save US taxpayers as much as $541 billion by 2022. Additionally, allowing state governments to negotiate the prices of prescription drugs supplied through the programme could save from $31 billion to $72 billion over the next decade, and consumers could save as much as $112 billion over the same period, it estimated."It's ridiculous for Medicare to be paying drug companies two and three times as much money for drugs as other countries at a time when we are cutting essential programmes," said Dean Baker, CEPR co-director and author of the report. "This fix alone would go far towards hitting anyone's deficit target," he added.
Also, the Congressional Budget Office (CBO) has estimated that allowing Medicare to claim the same discounts as Medicaid receives from drugmakers would save $137 billion over a 10-year period.