FY 2007 Budget Calls for $36 Billion in Medicare, $12 billion in Medicaid Savings
In his fiscal year 2007 budget proposal, President Bush Feb. 6 asked Congress to implement legislative changes which would produce $35.9 billion in Medicare savings over five years.
In addition, the Bush administration's FY 2007 budget blueprint requests that Congress take additional steps to reduce federal Medicaid spending. The president's budget proposes legislative changes in Medicaid that would reduce federal Medicaid funding by a net of $1.5 billion over five years and $5.1 billion over 10 years, the nongovernmental Center for Budget and Policy Priorities said in its analysis of the FY 2007 budget proposal. Proposed Medicaid regulatory changes would reduce federal funding by an additional $12.3 billion over five years, according to the center.
The $35.9 billion in proposed Medicare savings focuses on legislative proposals to encourage efficient and appropriate payment for services and promote competition and beneficiary involvement in their health care decisions, according to the Department of Health and Human Services. Medicare savings for FY 2007 would stand at $2.5 billion.
The Medicare savings proposals would slightly slow spending, Centers for Medicare & Medicaid Services Administrator Mark B. McClellan said.
The Medicare reforms also call for limiting subsidies to high-income beneficiaries and promoting use of health savings accounts among Medicare beneficiaries.
"The President is committed to continue strengthening and modernizing Medicare but also reducing the burden of entitlement spending on future generations," Health and Human Services Secretary Michael Leavitt said in a statement. "Our budget proposes a plan that allows Medicare spending to grow at a slower rate while putting Medicare on a steady course toward financial security, higher quality and greater efficiency."
The senior Democrat on the House Budget Committee said the president's plan to reduce health care entitlement spending would hurt vulnerable Americans. "Despite recent Administration statements about providing affordable health care for Americans, this budget includes increases in Medicare premiums, cuts to Medicare and Medicaid, and a misguided plan for health savings plans that will shift more of the cost of health care onto individual consumers," Rep. John M. Spratt Jr. (D-S.C.), ranking member on the House Budget Committee said in a Feb. 6 statement.
Senate Finance Committee Chairman Charles E. Grassley (R-Iowa) said additional Medicaid and Medicare cuts could be difficult, especially since Congress just cut health care entitlement spending by $11 billion.
"Congress just finished reducing the growth of Medicare and Medicaid by $11.1 billion over the next five years, and it wasn't an easy legislative accomplishment. Any more reductions of a significant scope could be difficult this year. If Medicare reductions do end up on the table, the Medicare Advantage [managed care plan] regional stabilization fund has to be front and center," Grassley said in the statement.
Medicare, Medicaid Proposals
Among the president's Medicare legislative proposals is a request to limit subsidies to high-income Medicare beneficiaries. The FY 2007 budget proposal would build on the 2003 Medicare Prescription Drug, Improvement, and Modernization Act (MMA) provision requiring higher-income beneficiaries to pay a greater portion on their Part B premium in 2007. Individuals with income over $80,000 and couples with income over $160,000 would be affected by this provision.
The FY 2007 budget proposal would expand this MMA provision by "eliminating annual indexing of thresholds for income-related Part B premiums beginning January 1, 2008."
In addition, the FY 2007 budget proposal calls for Medicare provider payment reforms. The administration said it supports physician payment reforms such as differential updates initially for physicians that report on quality measures and later for doctors who achieve efficient and quality care.
The changes in payments are in areas where the Medicare Payment Advisory Commission and other independent expert groups have identified ways in which Medicare payments "are not right," the CMS chief said.
The Bush administration also has proposed that Congress implement a trigger to automatically cut spending if Congress fails to act on Medicare reforms, building on an MMA requirement that the Medicare trustees report include a comprehensive fiscal analysis of the program's financing and issue a warning if general revenues are projected to exceed 45 percent of the total Medicare financing.
"If the 45 percent threshold were met and Congress failed to act on recommendations to sustain Medicare's financing, then a four-tenths of one percent reduction to all Medicare payments would be implemented to slow growth, similar to a reduction in the market basket update," according to the president's proposal. "The reduction would grow by four-tenths of one percent every year that the 45 percent threshold is exceeded."
Under the 2003 Medicare law, if general revenues are projected to finance more than 45 percent of total Medicare spending for two consecutive years as reported by the Medicare trustees, the president would be required to submit a legislative proposal to Congress to cut spending. Congress then would have to consider it via a fast-track process.
Expansion
The budget also includes some Medicaid expansion proposals. The president has proposed extending Transitional Medical Assistance through Sept. 30, 2007, at a cost of $180 million in FY 2007 and $360 million over five years.
To expand Medicaid and State Children's Health Insurance Program coverage, the Bush administration requested $100 million in annual grants for states. According to the president's budget proposal, this proposal would result in an additional Medicaid spending of $203 million in FY 2007 and $2 billion from FY 2007 through FY 2011.
A Medicaid legislative savings proposal calls for amending the Medicaid drug rebate formula to "administratively simplify drug rebate calculations and allow private purchasers to negotiate lower drug prices."
Also, the budget proposed to limit Medicaid reimbursement for multiple source drugs to 150 percent of the average manufacturers' price to reduce Medicaid overpayments for prescriptions. This proposal would save $130 million in FY 2007 and $1.3 billion over five years.
Administrative Medicaid action could include making a regulatory change to provider tax policy by phasing down the allowable provider tax rate from 6 percent to 3 percent. Currently, taxes imposed on providers cannot exceed 6 percent of total revenues and must be applied uniformly across all health care providers in the same class.
Discretionary Cuts
The HHS budget includes "targeted reductions" in discretionary spending by nearly $1.5 billion in FY 2007.
"There is a tendency to assume that any reduction constitutes a lack of caring, but cutting a program does not imply an absence of compassion. Government is very good at working toward some goals, but it is less efficient at pursuing others. Our budget reflects the areas that have the highest pay-off potential," the HHS secretary said in a statement.
The FY 2007 budget proposes the elimination of the $630 million Community Services Block Grant program and a $500 million reduction in the Social Services Block Grant program. Also, the president's proposal would eliminate the $99 million Preventive Health and Health Services Block Grant program and the $33 million Indian Health Service's Urban Indian Health Program.
There is no way to demonstrate the effectiveness of such block grants, Leavitt told reporters. The HHS secretary said the governors tend to like such programs because they "tend to be highly flexible."
Hospitals
An example of Medicare's legislative proposals is a hospital pay update of market basket (inflation index) minus 0.45 percent in 2007 and minus 0.4 percent in 2008 and 2009, according to the HHS budget summary. HHS said this would achieve savings of $6.6 billion in the 2007-2011 period.
In reaction to the budget proposal, Dick Davidson, president of the American Hospital Association, said Feb. 6 that hospitals "currently face a federal payment system which continues to pay well below the cost of caring for its beneficiaries. In fact, in 2004, about 7 of every 10 hospitals lost money serving Medicare patients. Unfortunately the budget proposed by President Bush deeply cuts the essential funding hospitals need to care for our nation's seniors."
Davidson also said the Bush budget proposes cuts to Medicaid, "which often serves as the sole source through which many of the most vulnerable members of our society receive health care."
Documents detailing the White House's health care proposals in the fiscal year 2007 budget blueprint are available online at http://www.whitehouse.gov/omb/ and at http://www.hhs.gov/budget/07budget/2007BudgetInBrief.pdf.
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