Better Align Federal Worker and MilitaryRetirement Programs.

The men and women who serve their fellow Americans in the Armed Forces and civil service are patriots who work for the Nation often at great personal sacrifice. Just as families and businesses must tighten their belts to live within their means, so must the Federal Government. In addition to the proposed changes to civilian retirement noted above, one area to examine is the retirement and health benefits offered to the Federal military workforce—a group of benefits that has grown comparatively more generous than those offered in the private sector. The Administration is proposing a set of reforms to align these retirement programs better with the private sector, while still preserving the Federal Government’s ability to recruit and retain the personnel that the American people need, including an adequately skilled and appropriately sized military force. The reductions sought in these retirement reforms are evenly split between civilian and military retirement programs. For military retirement reforms, the Administration proposes to:
• Increase TRICARE Prime Enrollment Fees, Initiate Standard/Extra Annual Enrollment Fees, and Adjust Deductible and Catastrophic Caps. DOD has implemented a variety of efficiencies within its medical program and continues to seek cost savings, but with increases in users, increased utilization, and expansion of benefits, defense health costs keep growing. In 2012, DOD implemented minor TRICARE Prime fee increases for new retiree enrollees. In 2013, DOD will phase
in additional fee increases based on annual retirement pay and initiate Standard and Extra enrollment fees. Deductibles will be slightly increased and the current catastrophic cap adjusted. The Administration’s proposal is estimated to save $12.1 billion in discretionary funds over 10 years.
• Initiate Annual Fees for TRICARE-For-military retirees and their families transition to Medicare coverage, with TFL becoming second payer. In the private sector, this type of “Medigap” policy would likely require premiums, deductibles, and copays. In 2009 the average annual premium for a Medigap policy was $2,100. By contrast, there are no premiums under the TFL programs. The Administration is proposing to introduce modest annual fees for the TFL program, based
on retirement pay. This proposal is estimated to save approximately $5.9 billion in mandatory funds and $5.0 billion in discretionary funds over 10 years.
• Make Targeted Increases to TRICARE Pharmacy
Benefit Copayments. Copayments for military members have lagged behind other Federal and private plans’ copayments
for prescription drugs. In an effort to slow the growth in DOD’s health care costs, the President’s 2012 Budget included minor pharmacy copay adjustments—which were supported by Congress. The new proposal would encourage the use of less expensive mail order and military treatment facility pharmacies. This option would have no impact on active duty members, but would affect active duty families and all military retirees regardless of the age of the beneficiary.
The Administration’s proposal is estimated to save $10.6 billion in mandatory funds and $17.4 billion in discretionary funds over 10 years.
• Establish a Military Retirement Modernization
Commission. To recommend improvements to the military retirement system, the Administration is proposing to establish a Military Retirement Modernization Commission. Under the proposal, the President would appoint the Commissioners; DOD would transmit to the Commission initial recommendations to change the military retirement system; the Commission would hold hearings, make final recommendations, and draft legislation to implement its recommendations;
the President would review and decide whether to transmit the Commission’s recommendations to the Congress; and Congress would vote “up or down” on the legislation. The Administration believes that any major military retirement reforms should include grandfathering provisions for current retirees and those currently serving in the military.

Reform the Aviation Passenger Security
Fee to Reflect the Costs of Aviation Security More Accurately. Reflecting its commitment to keeping air travel and commerce safe, the Administration has invested heavily in personnel, technology, and infrastructure to mitigate the constantly-evolving risks to aviation security. As risk changes, however, so too must the way in which we fund our aviation security efforts. In 2001, the Aviation and Transportation Security Act created the Aviation Passenger Security Fee,
which originally intended to recover the full costs of aviation security. Since its establishment, however, the fee has been statutorily limited to $2.50 per passenger enplanement with a maximum fee of $5.00 per one-way trip. This recovers only 43 percent of the Transportation Security Administration’s aviation security costs, which have risen over the years while the fee has remained the same. The Administration proposes to replace the current “per-enplanement” fee structure with a “per one-way trip” fee structure so that passengers pay the fee only one time when travelling to their destination; remove the current statutory fee limit and replace it with a statutory fee minimum of $5.00, with annual incremental increases of 50 cents from 2014 to 2018, resulting in a fee of $7.50 in 2018 and thereafter; and allow the Secretary of Homeland Security to adjust the fee (to an amount equal to or greater than the new statutory fee minimum) through regulation when necessary. The proposed fee would collect an estimated $9 billion in additional fee revenue over five years, and $25.5 billion over 10 years. Of this amount, $18 billion will be deposited into the General Fund for debt reduction.

Share Payments More Equitably for Air
Traffic Services. All flights that use controlled air space require a similar level of air traffic services.  However, commercial and general aviation pay very different aviation fees for those same air traffic services. To reduce the deficit and more equitably share the cost of air traffic services across the aviation user community, the Administration proposes to create a $100 per flight fee, payable to the Federal Aviation Administration, by aviation operators who fly in controlled airspace. All piston aircraft, military aircraft, public aircraft, air ambulances, aircraft operating outside of controlled airspace, and Canada-to-Canada flights would be exempted. This fee would generate an estimated $7.4 billion over 10 years. Assuming the enactment of the fee, total charges collected from aviation users would finance roughly three-fourths of
airport investments and air traffic control system costs.

Provide Postal Service Financial Relief and Undertake Reform.
 The Administration recognizes the enormous value of the U.S. Postal Service (USPS) to the Nation’s commerce and communications, as well as the urgent need for reform to ensure its future viability. USPS faces long-term, structural operating challenges that have been exacerbated by the precipitous drop in mail volume in the last few years due to the
economic crisis and the continuing shift toward electronic communication. Bold action is needed to ensure that USPS can continue to operate inthe short-run and achieve viability in the long run. To that end, the President is proposing a
comprehensive reform package that would:
1) restructure Retiree Health Benefit pre-funding in order to accelerate moving these Postal payments to an accruing cost basis and reduce near-year Postal payments;
 2) provide USPS with a refund over two years of the $10.9 billion positive credit balance in Postal contributions to the FERS program;
3) reduce USPS operating costs by giving USPS authority, which it has said it will exercise, to reduce mail delivery from six days to five days starting in 2013;
4) allow USPS to increase collaboration with State and local governments; and
5) give USPS the ability to better align the costs of postage with the costs of mail delivery while still operating within the current price cap, and permit USPS to seek the balance of the modest one-time increase in postage rates it proposed in
2010.
These reforms would provide USPS with over $25 billion in cash relief over the next two years and in total would produce savings of $25 billion over 11 years.

Strengthen the Safety Net for Workers’ Retirement Benefits.
All Americans deserve a secure retirement. The Administration has proposed to create new opportunities to save for retirement by establishing a system of automatic workplace pensions and doubling the small employer pension plan start-up credit. In addition, the Administration has issued regulations that would increase 401(k) fee disclosure, so that businesses can better differentiate among retirement products and workers can make more informed choices about how to invest their retirement savings. The Pension Benefit Guaranty Corporation (PBGC), which protects the retirement security of 44 million workers in defined benefit pension plans, is also critical to the success of a robust pension system. When underfunded plans terminate, PBGC assumes responsibility for paying the insured benefits. PBGC is responsible for paying current and future retirement benefits to more than 1.5 million workers and retirees. PBGC receives no taxpayer financing and relies primarily on premiums paid by insured plans. PBGC premiums are currently much lower than what a private financial institution would charge for insuring the same risk and are insufficient for PBGC to meet its long-term obligations. As of the end of September 2011, PBGC faced a $26 billion deficit. The Administration proposes to encourage companies to fully fund their pension benefits and ensure PBGC’s continued financial soundness by giving the PBGC Board the authority to adjust premiums to better account for the risk the agency is insuring. This proposal consists of two parts: a gradual increase in the single-employer flat-rate premium that will raise approximately $4 billion by 2022; and PBGC Board discretion to increase the single-employer variable-rate premium to raise $12 billion by 2022. This proposal would save $16 billion over the next decade.

Restore the Solvency and Financial Integrity of the Unemployment Insurance System by Helping Employers Now and Restoring State Fiscal Responsibility.
Unemployment Insurance (UI) provides a vital safety net for workers who are laid off. Over the past several years, UI benefits have kept many families afloat during tough financial times, and in 2010 these benefits prevented 3.2 million individuals—including nearly 1 million children—from falling into poverty. UI has among the highest “bang for-the-buck” of any measure the Federal Government could take to support near-term economic growth—generating up to $2 of economic activity for every $1 spent. The President has strongly supported expanding this critical safety net and has called for an extension of unemployment benefits for another year, along with key reforms that would help connect long-term unemployed Americans with work. At the same time, the combination of chronically underfunded reserves and the economic downturn has placed a considerable financial strain on States’ UI operations. Currently, 28 States owe more than $37 billion to the Federal UI trust fund. As a result, employers in those States are now facing automatic Federal tax increases, and many States have little prospect of paying these loans back in the foreseeable future. State UI programs also have large improper payment rates—12 percent in fiscal year 2011. The Administration proposes to put the UI system back on the path to solvency and financial integrity by providing immediate relief to employers to encourage job creation now, reestablishing State fiscal responsibility going forward, and working closely with States to eliminate improper payments. Under this Budget proposal, employers in indebted States would receive tax relief for two years. To encourage State solvency, the proposal would also raise the minimum level of wages subject to unemployment taxes in 2015 to a level slightly lower in real terms than it was in 1983, after President Reagan signed into law the last wage base increase. The higher wage base will be offset by lower tax rates to avoid a Federal tax increase. Further, the Administration has taken a number of steps to address program integrity in States that have consistently failed to place
enough emphasis on combating improper payments in their UI programs. The Administration’s aggressive actions have given States a number of tools to prevent improper payments, and reducing State UI error rates remains an Administration priority.

Reform Abandoned Mine Lands (AML) Payments.
The coal industry as a whole is currently held responsible for cleaning up abandoned coal mines by paying a fee that finances grants to States and Tribes for reclamation. This linkage was lost, however, when the Congress in 2006 authorized additional unrestricted payments to certain States and Tribes that had already completed their coal mine reclamation work. In addition, regular reclamation funds are not well targeted at the highest priority abandoned mine lands, because amounts are distributed by a production based formula so that funding goes to the States with the most coal production, not the greatest reclamation needs. States can use their funding for a variety of purposes, including the reclamation of abandoned hardrock mines, for which there is no other source of Federal funding. TheAdministration proposes to reform the coal AML program to reduce unnecessary spending and ensure that the Nation’s highest priority sites are reclaimed. First, the Administration proposes to terminate unrestricted payments to the States and Tribes that have been certified for completing their coal reclamation work, since these payments do not contribute to reclaiming abandoned coal mines. Second, the Administration proposes to reform the distribution process for the remaining funds to allocate available resources competitively to the highest priority coal AML sites.
Through a competitive grant program, a new AML Advisory Council will review and rank the abandoned mine lands sites, so that the Department of the Interior, in coordination with States and Tribes, can distribute grants to reclaim the
highest priority coal sites each year. Mining for hardrock minerals (e.g., silver and gold) has also left a legacy of abandoned mines across the United States. The Administration proposes to create a parallel AML program for abandoned hardrock sites. Like the coal program, hardrock reclamation would be financed by a new AML fee on the production of hardrock miner hold the hardrock mining industry responsible for cleaning up the hazards left by its predecessors. The funds would be distributed through a competitive grant program to reclaim the highest priority hardrock sites on Federal, State, tribal, and private lands. Altogether, this proposal will save $1.6 billion over the next 10 years. Equally important, it would focus available coal fees to better address the Nation’s most dangerous abandoned coal mines and establish a new approach to cleaning up abandoned hardrock mines across the country.

Provide a Better Return to Taxpayers from Mineral Development.
The public received about $10 billion in 2011 from fees, royalties, and other payments related to oil, gas, coal, and other
mineral development on Federal lands and waters. A number of recent studies by the Government Accountability Office and the Department of the Interior’s Inspector General have found that taxpayers could earn a better return through more rigorous oversight and policy changes, such as charging appropriate fees and reforming how royalties are set. The Budget proposes a number of actions to receive a fair return from the continued development of these vital U.S. mineral
resources: charging a royalty on select hardrock minerals (such as silver, gold, and copper); extending net receipt sharing, where States with mineral revenue payments help defray the costs of managing the mineral leases that generate the revenue; charging user fees to oil companies for processing oil and gas drilling permits and inspecting operations on Federal lands and waters, which complement new and rigorous safety and environmental standards to make sure that these activities are done responsibly; establishing fees for new non-producing oil and gas leases (both onshore and offshore) to encourage more timely production; and making administrative changes to Federal oil and gas royalties, such as adjusting royalty rates and terminating the royalty-in-kind program. Together, these changes are expected to generate approximately $3 billion in savings over 10 years.

Health Savings
Health care comprises one-quarter of non-interest Federal spending, and is the major driver of future deficit growth. To help control these costs, the President signed into law the Patient Protection and Affordable Care Act (ACA) which, according to the Congressional Budget Office’s latest analysis, will reduce the deficit by more than $1 trillion over the next two decades. Realizing this deficit reduction and efficiencies in the health care system that will reduce cost and improve
quality will require effective implementation of the ACA, and the President is resolutely committed to implementing ACA fairly, efficiently, and swiftly. Repealing or failing to implement health care reform would return the Nation to a path of
rapidly increasing health care costs, and add trillions to deficits over the long run. The President is putting forward $364 billion in health savings that build on the ACA to strengthen Medicare, Medicaid, and other health programs by reducing
wasteful spending and erroneous payments, and supporting reforms that boost the quality of care. It accomplishes this in a way that does not shift significant risks onto the individuals they serve; slash benefits; or undermine the fundamental
compact they represent to our Nation’s seniors, people with disabilities, and low-income families. Included are savings that would:

Reduce Medicare Coverage of Bad Debts.
Today, for most eligible provider types, Medicare generally reimburses 70 percent of bad debts resulting from beneficiaries’ non-payment of deductibles and copayments after providers have made reasonable efforts to collect the unpaid amounts. Similar to a proposal made by the National Commission on Fiscal Responsibility and Reform (Fiscal Commission), the Budget proposes to align Medicare policy more closely with private sector standards by reducing bad debt payments to 25 percent for all eligible providers over three years starting in 2013. This proposal will save
approximately $36 billion over 10 years.

Better Align Graduate Medical Education Payments With Patient Care Costs.
 Medicare compensates teaching hospitals for the indirect costs stemming from inefficiencies created from residents “learning by doing.” The Medicare Payment Advisory Commission (MedPAC) has determined that these Indirect Medical Education (IME) add-on payments are significantly greater than the additional patient care costs that teaching hospitals experience, and the Fiscal Commission, among others, recommended reducing the IME adjustment. This proposal would reduce the IME adjustment by 10 percent beginning in 2014, and save approximately $10 billion over 10 years.

Better Align Payments to Rural Providers With the Cost of Care.
Medicare makes a number of special payments to account for the unique challenges of delivering medical care to beneficiaries in rural areas. These payments continue to be important; however, in specific cases, the adjustments may be greater than necessary to ensure continued access to care. The Administration proposes to improve the consistency of payments across rural hospital types, provide incentives for efficient delivery of care, and eliminate higher than necessary reimbursement. To improve payment accuracy for Critical Access Hospitals (CAHs), the Administration proposes to reduce payments from 101 percent to 100 percent of reasonable costs, effective in 2013, and to eliminate the CAH designation for those that are fewer than 10 miles from the nearest hospital, effective in 2014. These changes will ensure that this unique payment system is better targeted to hospitals meeting the eligibility criteria and will save approximately $2 billion over 10 years.

Encourage Efficient Post-Acute Care.
Medicare covers services in skilled nursing facilities (SNFs), long-term care hospitals (LTCHs), inpatient rehabilitation facilities (IRFs) and home health. Over the years, expenditures for post-acute care have increased dramatically, and payments in excess of the costs of providing high quality and efficient care place a drain on Medicare. Recognizing the importance of these services, the Administration supports policies that will save approximately $63 billion over 10 years and improve the quality of care. These include adjusting payment updates for certain post-acute care providers, equalizing payments for certain conditions commonly treated in IRFs and SNFs; encouraging appropriate use of inpatient rehabilitation hospitals; and adjusting SNF payments to reduce unnecessary hospital readmissions.

Align Medicare Drug Payment PoliciesWith Medicaid Policies for Low-Income Beneficiaries.
Under current law, drug manufacturers are required to pay specified rebates for drugs dispensed to Medicaid beneficiaries. In contrast, Medicare Part D plan sponsors negotiate with manufacturers to obtain plan-specific rebates at
unspecified levels. The Department of Health and Human Services’ Inspector General has found substantial differences in rebate amounts and net prices paid for brand name drugs under the two programs, with Medicare receiving significantly lower rebates and paying higher prices than Medicaid. Moreover, Medicare per capita spending in Part D is growing significantly faster than that in Parts A or B under current law. This proposal would allow Medicare to benefit from the same rebates that Medicaid receives for brand name and generic drugs provided to beneficiaries who receive the Part D Low-Income Subsidy beginning 2013. Manufacturers previously paid Medicaid rebates for drugs provided to the dual eligible population prior to the establishment of Medicare Part D. The Fiscal Commission recommended a similar proposal to apply Medicaid rebates to dual eligibles for outpatient drugs covered under Part D. This proposal is estimated to save $156 billion over 10 years.

Increase Income-Related Premiums Under Medicare Parts B and D.
 Under Medicare Parts B and D, certain beneficiaries pay higher premiums as a result of their higher levels of income. Beginning in 2017, the Administration proposes to increase income-related premiums under Medicare Parts B and D by 15 percent and maintain the income thresholds associated with income-related premiums until 25 percent of beneficiaries under Parts B and D are subject to these premiums. This will help improve the financial stability of the Medicare program by reducing the Federal subsidy of Medicare costs for those beneficiaries who can most afford them.
This proposal will save approximately $28 billion over 10 years.

Modify Part B Deductible for New Beneficiaries.
Beneficiaries who are enrolled in Medicare Part B are required to pay an annual deductible. This deductible helps to share responsibility for payment of Medicare services between Medicare and beneficiaries. To strengthen program financing and encourage beneficiaries to seek high-value health care services, the Administration proposes to apply a $25 increase in the Part B deductible in 2017, 2019, and 2021 for new beneficiaries. Current beneficiaries or near retirees would not be subject to the revised deductible. This proposal will save approximately $2 billion over 10 years.

Introduce Home Health Copayments for New Beneficiaries.
 Medicare beneficiaries currently do not make copayments for Medicare home health services. This proposal would create a home health copayment of $100 per home health episode, applicable for episodes with five or more visits not preceded by a hospital or other inpatient post-acute care stay. This would apply to new beneficiaries beginning in 2017. This proposal is consistent with a MedPAC recommendation to establish a per episode copayment. MedPAC noted that “beneficiaries without a prior hospitalization account for a rising share of episodes” and that “adding beneficiary cost sharing for home health care could be an additional measure to encourage appropriate use of home health services.” This proposal will save approximately $350 million over 10 years.

Introduce a Part B Premium Surcharge for New Beneficiaries That Purchase Near First-Dollar Medigap Coverage.
 Medigap policies sold by private insurance companies provide beneficiaries additional support for covering healthcare costs by covering most or all of the cost sharing Medicare requires. This protection, however, gives individuals less incentive to consider the costs of health care services and thus raises Medicare costs and Part B premiums. Of particular concern are Medigap plans that cover substantially all Medicare copayments, including even the modest copayments for routine care that most beneficiaries can afford to pay out of pocket. To encourage more efficient health care choices,
the Administration proposes a Part B premium surcharge equivalent to about 15 percent of the average Medigap premium (or about 30 percent of the Part B premium) for new beneficiaries that purchase Medigap policies with particularly low
cost-sharing requirements, starting in 2017. Current beneficiaries and near-retirees would not be subject to the surcharge. Other Medigap plans would be exempt from this requirement while still providing beneficiaries options for protection against high out-of-pocket costs. This proposal will save approximately $2.5 billion over 10 years.

Strengthen the Independent Payment AdvisoryBoard (IPAB) to Reduce Long-Term Drivers of Medicare Cost Growth.
Created by the ACA, IPAB has been highlighted by economists and health policy experts as a key contributor to Medicare’s long term solvency. Under current law, if the projected Medicare per capita growth rate exceeds a predetermined target growth rate, IPAB recommends to the Congress policies to reduce the rate of Medicare growth to
meet the target. IPAB recommendations are prohibited from increasing beneficiary premiums or cost-sharing, or restricting benefits. To further moderate the rate of Medicare growth, this proposal would lower the target rate from the GDP per capita growth rate plus 1 percent to plus 0.5 percent. Additionally, the proposal would give IPAB additional tools like the ability to consider value-based benefit design.

Cut Waste, Fraud, and Abuse in Medicare and Medicaid.
 In this fiscal environment, we cannot tolerate waste, fraud, and abuse in Medicare, Medicaid, and the Children’s Health
Insurance Program (CHIP)—or any Government program. That is why the Administration has introduced its Campaign to Cut Waste, together with long-standing efforts to boost program integrity and reduce improper payments (that is, payments made to the wrong person in the wrong amount, or for the wrong reason). The Administration is aggressively implementing the new tools for fraud prevention included in the ACA. Also, it is implementing the fraud prevention system, a predictive analytic model similar to those used by private sector experts. In addition, the Administration is proposing a series of policies to build on these ongoing efforts that will save nearly $5 billion over the next 10 years. Specifically, the Administration proposes to: create new initiatives to reduce improper payments in Medicare; dedicate penalties for failure to use electronic health records toward deficit reduction; update Medicare payments to more appropriately account for utilization of advanced imaging; require prior authorization for advanced imaging; direct States to track high prescribers and utilizers of prescription drugs in Medicaid to identify aberrant billing and prescribing patterns; and affirm Medicaid’s position as a payer of last resort by removing exceptions to the requirement that State Medicaid agencies reject medical claims when another entity is legally liable to pay the claim. Additionally, the Budget would alleviate State program integrity reporting requirements by consolidating redundant error rate measurement programs to create a streamlined audit program with meaningful outcomes, while maintaining the Federal and State’s government ability to identify and address improper Medicaid payments.