President Obama’s Budget Includes Health And Retirement Proposals

President Obama’s budget proposal for fiscal year 2010 would establish a reserve fund and guiding principles for health care reform. The retirement proposals emerged during the president’s campaign: to establish automatic workplace pensions and expand the Saver’s tax credit. To bring in revenue, the president proposes to means-test Medicare Part D premiums, tax carried interest as ordinary income and "reform deferrals and other tax reform policies."

Health care
The budget proposes to build up a reserve fund of almost $634 billion over 10 years for health care reform, although the administration acknowledges that additional revenue will be required to fully fund comprehensive reform. The budget also outlines the following principles to guide upcoming reforms:

• Protect the financial health of families. Reforms must reduce premiums and other health care costs borne by individuals and businesses, and protect individuals from bankruptcy arising from catastrophic illness.
• Eliminate waste. Reforms must reduce administrative costs, unnecessary services and other inefficiencies.
• Aim for universal coverage. The country must set out on a "clear path to cover all Americans."
• Guarantee choice. Individuals should have a choice of plans and physicians, and the option of keeping their employer-based plan.
• Promote prevention and wellness. Upcoming reforms must invest in public health efforts to address obesity, sedentary lifestyles and smoking, and guarantee access to proven preventive treatments.
• Improve patient safety and quality of care. Reforms must incorporate patient safety measures, reduce disparities in patient care, promote health information technology and develop data on treatment efficacy.
• Establish long-term fiscal sustainability. The budget proposal states that health care reform “must pay for itself” by reining in cost growth and improving productivity (although the language also implies that other, dedicated sources of additional revenue may be needed).

To finance the reserve fund, President Obama proposes to reduce health care costs and limit deductions for higher-income taxpayers. The specific proposals include:

• Implement a competitive bidding process that bases payments to Medicare Advantage (MA) plans on the average of the bids submitted. The proposal is estimated to save more than $175 billion over 10 years.
• Establish a pathway for generic biologics and speeding generic drugs to market.
• Make changes to enable the Centers for Medicare & Medicaid Services “to respond more rapidly to emerging program integrity vulnerabilities” in Medicare and Medicaid “through an increased capacity to identify excessive payments and new processes for identifying and correcting problems.”
• Change several Medicare payment practices:
  • Provide bundled payments that cover both the costs of hospitalizations and certain care that occurs in the first 30 days after a hospitalization and reduce payments to hospitals with high rates of readmission.
  • Link some payments for inpatient acute-care hospital services to the hospital’s performance on specific quality measures.
  • Reform physician payment formulas.
• Require higher-income individuals to pay larger Part D premiums.
• Prohibit taxpayers above the 28 percent tax bracket from taking itemized deductions, such as deductions for charitable donations, mortgage interest and investment expenses.

Retirement
The budget includes reforms to the Saver’s tax credit and so-called automatic workplace pensions.

• Saver’s credit. The budget would change the Saver’s credit to match 50 percent of the first $1,000 in retirement plan contributions by couples earning up to $65,000 (reduced from $75,000 in the president’s campaign proposals). The budget would also make the credit refundable.
• Automatic workplace pensions (as proposed during the campaign). Few details are available, but employers that do not offer a retirement plan would have to automatically enroll employees in a direct-deposit IRA.

The budget does not include pension investment disclosure, penalty-free distributions or other retirement proposals that were part of President Obama’s campaign.

Social Security
The budget proposes to preserve and strengthen Social Security by increasing funding for program integrity and restructuring the federal wage withholding process to require more frequent reporting to the Social Security Administration. The budget does not mention the campaign proposal to impose payroll taxes on workers making $250,000 or more a year.

Other items
Some items appear in the revenue tables but are not discussed in any detail. In addition to the proposal to increase Part D premiums for higher-income beneficiaries, these items would:

• Tax carried interest as ordinary income.
• Implement international enforcement, reform deferrals and other tax reform proposals.
• Reinstate the 36 percent and 39.6 percent tax brackets for single taxpayers whose incomes exceed $200,000 ($250,000 for joint filers).
• Reinstate the personal exemption phaseout for those whose incomes exceed $200,000 ($250,000 for joint filers). 
• Raise the tax rate on capital gains and dividends to 20 percent for filers whose incomes exceed $200,000 ($250,000 for joint filers).

The budget proposal is useful in highlighting some of the administration’s policy ideas and priorities. But the proposals must work their way through Congress before becoming law and many of the ideas are controversial, so the final budget might look very different.

The budget is available at http://www.whitehouse.gov/omb/budget/.