By John Reichard, CQ HealthBeat Editor

A published report suggesting that Republican presidential nominee John McCain would cut Medicare and Medicaid by $1.3 trillion over 10 years misses the mark, a top McCain adviser said Tuesday. Douglas Holtz-Eakin, the former Congressional Budget Office director who is serving as a senior adviser to the McCain campaign, told CNN that the idea McCain wants to cut Medicare and Medicaid to pay for his health plan is based on a Wall Street Journal article “that I think mischaracterized the plan itself.”

The story, which appeared in Monday’s edition, said that McCain would pay for his health plan with “major reductions to Medicare and Medicaid ... in a move that independent analysts estimate could result in cuts of $1.3 trillion over 10 years to the programs.”

But Holtz-Eakin implied in an interview Tuesday with CNN anchor John Roberts that McCain would save money in the federal health programs not through cuts but through steps such as better preventive care and applying broadly the best treatment practices developed to care for chronic diseases. Holtz-Eakin also has been quoted as saying savings could be obtained through improved efforts to weed out fraud in the Medicare program, and because fewer people would be on Medicaid because of the new tax credits under the McCain plan.

A McCain spokesman did not immediately respond to a request for comment.

The McCain campaign has suggested this year that the candidate’s plan to end the current exclusion of employer-paid premiums from the taxable income of workers would by itself cover the costs of tax credits that McCain would provide Americans to help pay their health care costs. But in recent days it has become apparent that other sources of funds will be needed to pay for those credits in addition to revenues that would be raised by making employer-paid premiums taxable.

The cost of the tax credits will be considerable. The McCain campaign says that for every tax bracket, a family purchasing a $12,000 coverage plan would pay lower taxes once his $5,000 family tax credit is factored in. The amount of the tax reduction would be paid in the form of a government contribution to a tax-deferred savings account that could be used to pay health expenses.

Some part of the revenue to fund the credits would come from tax increases for wealthy individuals with lavish health benefits, but that wouldn’t be enough to cover the costs of the credits, analysts say. That’s why the campaign is also looking to Medicare and Medicaid for efficiencies.

Roberton Williams, a research analyst with the Tax Policy Center, a joint program by the Urban Institute and the Brookings Institution, said that initially virtually everyone with employer-sponsored health benefits would get a tax cut under the McCain plan. But he said the net cost of the plan would be $1.3 trillion over 10 years, even after taking into account the revenues that would be generated from the fact that some higher income Americans with very lavish health benefits would have to pay higher taxes. The center hasn’t said that money would come from Medicare and Medicaid cuts but the money would have to come from somewhere, he said.