So, where specifically does the money come from to fund the $634 billion health reform budget proposed so far? Remember all of these items will have to be vetted through the Congress, and that will mean changes. But, in the Obama Budget it includes:

• Competitive Bidding for Medicare Advantage plans that saves $177 billion over ten years. 
• $37 billion in cuts to home health over 10 years.
• $20 billion in increased Medicaid drug rebate payments and applying rebates to new formulations of existing drugs.
• $9 billion in savings generated by follow-on biologics.
• $38 billion in hospital payment reductions including episodic (capitated) payments and new quality initiatives.
• Income relating Part D premiums (saves $8 billion).
• Limiting itemized deductions to a lower rate for higher income filers (raises $316 billion over 10 years).

SGR is not in this -- rather it is (as stated above) mysteriously in the budget somewhere else.

Health IT isn’t much here either -- because a lot it is already in the Stimulus Bill, along with a kick start for comparative effectiveness research. [more]

Specifically, the President has stated the money and he will be guided by eight principles:

• People must be protected from catastrophic costs
• Coverage must be made affordable through reduced administrative costs, unnecessary tests, waste and inefficiencies (this is what OMB Director Orzag emphasizes)
• Cover all Americans
• Make coverage portable
• Guarantee choice of plans
• Invest in prevention and wellness
• Improve quality and safety
• Pay for itself, and thus, the reserve fund.

We can support all of these! So, it appears that this $634 billion reserve fund (which needs another $600 billion that Congress would need to find in addition to cover all Americans), is on the table to incentivize Congress to go for the full agenda. This money won’t get spent on anything else. It’s use it or lose it. And while this seems all positive, there are a couple unspoken details that are really set up to be deal killers (devil's in details) as this proceeds:

First, the Obama team and Congressional Dem leaders want to add additional taxes on high income earners (beyond the ending of the Bush tax cuts) that would eliminate some of the current deductibility of mortgages, health insurance, and other deductions over some threshold levels. This will raise some of the remaining money needed to get all the way to $1.2 trillion to cover all uninsured. That will be a hard sell to Republicans and some moderate Dems.

Second, and more important: The Obama team also wants to add a new public insurance plan (managed by CMS) to compete with private insurers for working families’ coverage. A good feature of this idea is that this new plan might reduce premiums overall for all insurers by forcing more competition in the private insurance market. But, the idea is also a concession to labor, which wants a single payer solution. The thinking here is that the public plan might out-compete private insurers -- individuals might over time shift to the public coverage, gradually killing off the private insurers and  creating the single payer. I think the private insurers are quite capable of competing with whatever CMS comes up with here; BUT I think this idea could also be a deal killer for Republicans if it stays in the mix. It will be seen as the covert path to a single payer, and thus is a very risky feature.

We shall see…

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