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Obama Unveils Deficit Reduction Package

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Obama Unveils Deficit Reduction Package

September 19, 2011

President Obama unveiled this morning his deficit reduction package that includes $72 billion in cuts to Medicaid and other health programs.


The president's plan includes several provider cuts that have been floated in recent debt reduction talks:



  • Reduce fraud, waste, and abuse in Medicaid, with savings of $1.4 billion over 10 years, through proposals to strengthen third-party liability for Medicaid beneficiary claims; require manufacturers that improperly report items for Medicaid drug coverage to fully repay states; track high prescribers and utilizers of prescription drugs in Medicaid; enforce Medicaid drug rebate agreements; increase penalties on drug manufacturers for fraudulent non-compliance with Medicaid drug rebate agreements; require drugs to be properly listed with the FDA to receive Medicaid coverage; and prohibit states from using federal funds as the state share of Medicaid or CHIP, unless specifically authorized by law.

  • Increase state flexibility in Medicaid by letting states use a "benchmark" benefits plan for optional populations with income above 133 percent of the federal poverty line. It also would consolidate and streamline redundant error rate programs.

  • Accelerate state innovation waivers under the health reform law by making the health reform law's state innovation waivers available starting in 2014—three years earlier than under the current law.

  • Limit Medicaid provider taxes. By delaying the effective date until 2015, the proposal gives states time to prepare for the change. This proposal is projected to save $26.3 billion over 10 years.

  • Simplify federal Medicaid payment formulas for states. Beginning in 2017, this proposal would replace the currently complicated formulas with a single matching rate specific to each state based on enrollment starting in 2014 that automatically increases if a recession forcesenrollment and state costs to rise. The full federal funding for people gaining Medicaid coverage in 2014 through 2016 would be preserved. The proposal is projected to save $14.9 billion over 10 years.

Obama said he would veto any proposal with cuts that did not include tax increases.


The officials also said that the proposal, which will be presented to the debt law's super committee, draws upon the principles that the president had discussed in April. That plan had included a new blended FMAP rate in Medicaid, a bolstered Independent Payment Advisory Board, and “leveraging” Medicare’s purchasing power to reduce drug costs.


In April, the president also expressed support for proposals that encourage higher quality care for dually eligible beneficiaries and called for prohibiting pay-for-delay drug marketing agreements, and called for implementing Medicaid “management” of high prescribers and users of prescription drugs.