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Fact or fiction? Pay for reform by cutting waste

Claim: President Obama can pay for most of his reform by cutting waste and inefficiency in Medicare and Medicaid.

The Medicare and Medicaid programs will cost taxpayers $720 billion this year. President Obama, referring to his reform proposal, said in his speech to Congress on Wednesday that "reducing the waste and inefficiency in Medicare and Medicaid will pay for most of this plan." Obama’s critics agree there’s waste in Medicare and Medicaid, but doubt Congress could find and cut enough of it to pay for a plan that Obama says would cost $900 billion over 10 years.

Fact or fiction?
Unclear. The truth hinges on how one defines "waste and inefficiency." For instance, the Urban Institute said in a recent that reducing preventable hospital readmissions could save Medicare $15 billion over 10 years. The report identified a total of about $1.4 trillion in inefficient spending.

  • What about tax increases?

Obama didn't mention any tax increases in his speech to Congress. But House Democrats' bill assumes that eliminating inefficiencies won’t be sufficient to pay for health reform. It calls for tax increases of $544 billion over 10 years on people with incomes over $300,000.

  • Beyond the first 10 years

A Lewin Group study of the Democrats' bill the said that in the second decade of its operation (i.e., 2020 through 2029) it would have a net cost of more than $1 trillion. That's because health care costs will grow faster than income.

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