In his plan to trim the federal deficit, President Barack Obama Monday proposed $320 billion in cuts to Medicare and Medicaid, largely by changing how the federal government pays health providers, slashing payments to drug companies, and dramatically changing the way it splits the costs of Medicaid with the states, according to a fact sheet the White House released today.

The biggest cut to Medicare requires pharmaceutical companies to lower their rates. The proposal would save Medicare an estimated $135 billion over 10 years starting in 2013. The change would allow the federal government to receive the same brand name and generic rebates for low-income Medicare patients as is provided to Medicaid beneficiaries.

The cuts to the major health entitlement programs are part of a White House plan to reduce the federal deficit by more than $3 trillion over the next 10 years. The plan is the administration’s opening bid in negotiations on deficit reduction to be taken up by the joint House-Senate “super committee” over the next two months.

Some key elements would:

*Cut $3.5 billion from a fund created by federal health reform to improve disease prevention and to promote public health while keeping $13.8 billion.

*Introduce co-pays for some Medicare beneficiaries receiving home health services

*Increase Medicare deductibles for physician services by $25 in 2017, 2019 and 2021 for new beneficiaries and set higher premiums for wealthier Medicare beneficiaries

Of greatest concern to political leaders in Connecticut, the plan also would change how the federal government splits the cost of Medicaid with the states.

Currently, states and the federal government share the cost of Medicaid, with the federal government paying about two-thirds and the states one-third of the total national spending. The percentage varies by state based on the wealth of each state, with poorer states getting a higher match rate. The state match rate also varies for both Medicaid and the Children’s Health Insurance Program, which covers children from low-income households.

Obama is proposing that beginning in 2017, the matching rates from the two programs would be blended to a single rate, but from 2014 through 2016, states with a higher enrollment would get a higher federal match rate. The idea is to give states incentives to enroll more people starting in 2014 when the health law expands Medicaid.

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