Obama Wants $634 Billion to Start on Health Care

President Barack Obama proposed spending $634 billion to expand U.S. health care, financing the “down payment” with increased taxes on wealthy Americans and less government money for some drugmakers and health insurers.

The budget outline, presented today to Congress, calls for spending the money over 10 years while offsetting about half by limiting tax deductions for couples making more than $250,000 a year. The proposal would stop “waste” in government payments to Humana Inc. and companies like it that provide special plans for the elderly. Managed-care stocks plummeted.

Obama said Congress will have to come up with more money to pay the full cost of making health care affordable to all and available to the 46 million Americans now without medical insurance. He said in the budget plan he was open to “all serious ideas,” including taxing employer-provided health benefits, something he opposed during his campaign. Economists say the full cost of covering everyone may reach $1.5 trillion.

“We are making a historic commitment to comprehensive health-care reform,” Obama said in remarks today in Washington. “It’s a step that will not only make families healthier and companies more competitive, but over the long term, it will also help us bring down our deficit.”

The plan calls for requiring Humana, UnitedHealth Group Inc., WellPoint Inc. and other insurers to offer competitive bids to offer what are known as Medicare Advantage plans, which bundle benefits and add more services than what the elderly get when they obtain coverage directly from the government.

Humana, Lilly Drop

Humana dropped 19 percent, or $5.72, to $23.64 at 4:15 p.m. in New York Stock Exchange trading, leading a 12 percent decline in the Standard & Poor’s 500 Index of managed-care providers.

The budget also would squeeze discounts to drugmakers, among them Eli Lilly & Co., that supply medicines to the poor through the joint U.S. state Medicaid program. Lilly fell 4.7 percent after a spokesman for the Indianapolis-based company said it stands to lose hundreds of millions of dollars in yearly sales if the Obama plan is approved.

Obama’s proposed budget would raise rebates drugmakers must provide to supply medicines for Medicaid patients, to 22 percent of the manufacturer’s price from 15 percent.

Drug Savings

The Medicare proposal would save $175 billion over 10 years, starting with $11.2 billion in 2012, according to the budget plan. The insurance companies are paid on average 14 percent more than it costs Medicare to provide benefits directly, according to government estimates, and Obama said in the proposal “it’s time to stop this waste.”

Higher-income beneficiaries of Medicare prescription-drug plans would pay higher premiums in 2011, according to the proposal.

The Medicaid drug proposal would save the government $19.5 billion between 2010 and 2019, according to the budget document. Obama also called for holding down medical costs by easing the way for generic copies of more expensive drugs made through biotechnology.

The insurance industry said Americans 65 and older would lose benefits under the Medicare Advantage proposal.

“A significant portion of his proposed savings will come at the expense of high quality, high-value health care coverage for millions of America’s seniors,” said Cheryl Leamon, a spokeswoman for WellPoint Inc., the second-largest health insurer by revenue, in an e-mailed statement.

‘Increasing Taxes’

The House Republican leader, John Boehner of Ohio, said in a statement that “increasing taxes during a recession, especially on small businesses,” was an irresponsible way to fund more health care.

The budget, along with Obama’s proposals to use more electronic records, will ultimately help industry, said David Snow, chief executive officer of Medco Health Solutions Inc., the largest U.S. manager of employee drug plans. The generic- biotechnology proposal offers “an enormous opportunity” for savings, he said.

The proposals are “a starting place to start debating real health care reform in this country and we welcome it,” he said by telephone.

Obama also proposed that hospitals get “bundled” payments for treating patients, instead of getting reimbursed for each procedure done, which health-policy experts say can encourage providers to do more to get more money. Hospitals with high rates of readmissions within the same 30-day period will be penalized. This would save about $26 billion over the 10-year period.

Cancer Research, Generic Drugs

Cuts to Medicare payments for home health care “to align with costs” would generate $37 billion more, according to the budget.

Cancer research funding would receive more than $6 billion in increased funding under the budget proposal, reflecting Obama’s pledge before Congress to this week to start a new effort “to conquer a disease that has touched the lives of nearly every American, including me.”

The funds would come on top of $10 billion provided in the recently signed stimulus bill to support new research at the National Institutes of Health.

To speed development of generic drugs, the administration’s budget requests $20 million in 2013 to create a pathway for FDA approval of generic versions of biologic drugs, which are made from living organisms. This change would save the government about $9 billion over a 10-year period, the budget said.

Generic Biologics

Letting generic-drug companies make their own versions of medicines produced by biotechnology companies like Genentech Inc. and Amgen Inc. could save $25 billion in the first decade they’re on the market, the Congressional Budget Office, a research agency of Congress, estimates.

Generic versions of biologics would be prohibited for a period “consistent with” current limits of about seven years, the administration proposed. Biotechnology companies have been pushing for 12 years of exclusivity.

“It’s important and sets a marker, but there are clearly going to be proposals for a longer exclusivity period, and that’s where I expect some negotiation,” said Mark McClellan, a former Food and Drug Administration commissioner now at the Brookings Institution in Washington.

The budget also proposes barring biologic drugmakers from “reformulating” existing products into new products to restart the exclusivity process, known as ‘ever greening.’