Most of Medicare and Medicaid savings in Bush's budget proposal come from reducing growth in Medicare provider payments

Feb 7 2007

The "lion's share" of the Medicare and Medicaid savings over five years proposed in President Bush's fiscal year 2008 budget proposal comes from limits on annual inflation adjustments for reimbursements to hospitals, nursing homes and other health care providers for Medicare, amounting to $39.5 billion, CQ HealthBeat reports (Reichard [1], CQ HealthBeat, 2/5).

The total five year savings for the two programs under Bush's budget is about $101.5 billion (Kaiser Daily Health Policy Report, 2/5). The budget proposal would reduce Medicare reimbursements to providers by 0.65% in FY 2008.

In addition, the budget proposal would end a practice under which Medicare reimburses providers when beneficiaries fail to pay their bills.

The budget proposal also would automatically reduce reimbursements by 0.4% when Medicare general revenue exceeds 45% of the total cost of the program and would reduce reimbursements to providers that fail to submit price and quality data after 2008.

Under the budget proposal, Medicare reimbursements to hospitals would decrease by about $30 billion over five years, according to industry analysts (Zhang, Wall Street Journal, 2/6).

In addition to the $76 billion in Medicare savings over five years from legislative changes, the budget proposal includes $10.2 billion in savings from administrative changes to improve "efficiency, productivity and program integrity," HHS said (Reichard [1], CQ HealthBeat, 2/5).

The budget proposal would "eliminate annual indexing on income thresholds" to require a larger number of higher-income Medicare beneficiaries to pay increased premiums in future years.

Currently, individual Medicare beneficiaries with annual incomes that exceed $80,000 and married couples with annual incomes that exceed $160,000 pay increased premiums.

In addition, the proposal would implement a premium based on income in the Medicare prescription drug benefit (Kaiser Daily Health Policy Report, 2/5).

The annual growth rate of Medicare would decrease to 5.6% from 6.5% within five years under the budget proposal, HHS Secretary Mike Leavitt said (Zhang, Wall Street Journal, 2/6).

Medicaid, SCHIP
The budget proposal includes about $26 billion in Medicaid savings -- $13 billion from legislative changes and $12.7 billion from administrative changes -- over five years.

According to CQ HealthBeat, the budget proposal would reduce Medicaid reimbursements for administrative costs and pharmacies and make "it hard for owners of more valuable homes to qualify" for the program, CQ HealthBeat reports (Reichard [1], CQ HealthBeat, 2/5).

The budget proposal would limit Medicaid matching rates for administrative costs to 50% (Zhang, Wall Street Journal, 2/6).

In addition, the budget proposal would reduce Medicaid reimbursements to government providers for savings of $5 billion, eliminate certain reimbursements for school-based services for savings of $3.6 billion, revise coverage of rehabilitation services for savings of $2.2 billion and eliminate reimbursements for graduate medical education for savings of $1.8 billion (Reichard [1], CQ HealthBeat, 2/5).

Under the budget proposal, the annual growth rate of Medicaid would decrease from 7.3% to 7.1% over five years (Zhang, Wall Street Journal, 2/6).

The budget proposal includes a $5 billion increase in funds for SCHIP over five years -- "far short of the $12 billion or more that experts say is needed to keep covering the 6 million children now in the program," the Washington Post reports (Lee, Washington Post, 2/6).

The budget proposal would limit SCHIP eligibility to children in families with annual incomes less than 200% of the federal poverty level, or about $38,000 for a family of four (Gay Stolberg, New York Times, 2/6).

At least 17 states have expanded SCHIP eligibility to children in families with annual incomes less than 350% of the poverty level (Solomon, Wall Street Journal, 2/6).

Other Health Proposals
The budget proposal would increase funds for FDA by $100 million, which would include "the first user fee for the generic drug industry as well as a big boost in fees paid by brand-name pharmaceutical companies," the Newark Star-Ledger reports.

The $2.1 billion FDA budget includes almost $444 million in user fees from industries regulated by the agency, with $15.7 million in fees from generic pharmaceutical companies.

In addition, the FDA budget for prescription drug safety oversight would increase by $11.2 million, and the agency budget for medical device safety oversight would increase by $7.2 million (Cohen, Newark Star-Ledger, 2/6).

The FDA budget also includes $10.6 million to fund food safety oversight, "including the development of better methods to detect and find the source of foodborne illness outbreaks," Dow Jones reports (Corbett Dooren, Dow Jones, 2/5).

The budget proposal would reduce funds for CDC core programs -- such as disease control, health information services and bioterrorism response -- by $500 million to about $6 billion, according to the Campaign for Public Health (Nesmith, Atlanta Journal-Constitution, 2/6).

The budget proposal includes $1.2 billion to fund preparations for a flu pandemic, with $870 million to help fund the development of vaccines, antiviral medications and rapid diagnostic tests.

In addition, the budget proposal includes $4.3 billion in funds for HHS for bioterrorism preparedness, with $1.1 billion for state and local governments and hospitals to upgrade their public health emergency response capabilities.

The budget proposal would provide $5.7 billion for the Health Resources and Services Administration; $3 billion for the Substance Abuse and Mental Health Services Administration; and 28.7 billion for NIH (Reichard [2], CQ HealthBeat, 2/5).

The budget proposal would provide about $2.2 billion for state and local grants and training programs for emergency first responders (Strohm, CongressDaily, 2/6).

The budget is available online.

Bush Administration Comments
Bush said that the priorities in his budget proposal are "protecting the homeland and fighting terrorism, keeping the economy strong with low taxes and keeping spending under control."

In addition, he said, "Congress needs to listen to a budget which says no tax increase, and a budget, because of fiscal discipline, that can be balanced in five years" (Taylor, AP/Philadelphia Inquirer, 2/6).

Leavitt said, "Restraining Medicare spending is a key factor in ensuring that the program will be sustainable for future generations" (Lipman, Cox/Atlanta Journal-Constitution, 2/6).

Reaction
Senate Majority Leader Harry Reid (D-Nev.) said, "His budget hands out favors for the oil and gas industry, while eroding health coverage for children and seniors" (Solomon, Wall Street Journal, 2/6).

House Speaker Nancy Pelosi (D-Calif.) said that the budget proposal is "more of the same fiscal irresponsibility and misplaced priorities; it takes our country in the wrong direction" (Mercer, Media General/Richmond Times-Dispatch, 2/6).

Senate Finance Committee Chair Max Baucus (D-Mont.) said, "Congress must do more to fund" SCHIP than the budget proposal (Washington Post, 2/6).

Baucus added that the committee will "take a thoughtful look at ways to save money in Medicare and Medicaid without harming the health of America's elderly and disadvantaged" (Zhang, Wall Street Journal, 2/6).

House Budget Committee ranking member Paul Ryan (R-Wis.) said, "I fully support the president's goal of balancing the budget -- without raising taxes -- by supporting continued economic growth and job creation and by further restraining federal spending" (Dennis/Higa, CQ Today, 2/5).

Federation of American Hospitals President Chip Kahn said that the budget proposal "is the wrong budget at the wrong time and would harm those seniors who depend upon America's hospitals" (Zhang, Wall Street Journal, 2/6).

American Hospital Association President Rich Umbdenstock said, "Today's budget is devastating news for children, seniors and the disabled who depend on the Medicare and Medicaid programs. They are being unfairly singled out to carry the burden of achieving a balanced budget" (AP/Philadelphia Inquirer, 2/6).

AARP CEO Bill Novelli said that the budget proposal calls for "piecemeal cuts that threaten to damage critical programs without addressing the fundamental problems that exist in our entire health care system." American Medical Association officials in a statement said that they are "deeply disappointed" that Bush did not propose to eliminate scheduled reductions to Medicare physician reimbursements (Lipman, Cox/Atlanta Journal-Constitution, 2/6).

Medicare Rights Center President Bob Hayes said, "The president is looking to save money in all the wrong places."

Joe Antos of the American Enterprise Institute said, "To the extent we can generate a little bit more in premiums, it's going to help a little bit. The bigger fix is to find a way to improve the efficiency of the program" (USA Today, 2/6).

Broadcast Coverage
Several broadcast programs reported on the budget proposal:

• PBS' "NewsHour With Jim Lehrer": The segment includes interviews with Rob Portman, director of the White House Office of Management and Budget, and Senate Budget Committee Chair Kent Conrad (D-N.D.). In addition, the segment includes comments from Bush and House Budget Committee Chair John Spratt (D-S.C.) (Woodruff, "NewsHour with Jim Lehrer," PBS, 2/6). Audio and a transcript of the segment are available online.
• PBS' "Nightly Business Report": The segment includes comments from Portman, Kahn and Rep. Pete Stark (D-Calif.) (Gharib, "Nightly Business Report," PBS, 2/5). A transcript of the segment is available online.
• NPR's "All Things Considered": The segment includes comments from Portman and Bush (Greene, "All Things Considered," NPR, 2/5). Audio of the segment is available online. "All Things Considered" also included analyses of the budget proposal. The segment includes comments from Julie Rovner, a health policy correspondent for NPR (Norris, "All Things Considered," NPR, 2/5). Audio of the segment is available online. In addition, "All Things Considered" included an interview with Stan Collender, a budget analyst at Qorvis Communications (Siegel, "All Things Considered," NPR, 2/5). Audio of the segment is available online.
• NPR's "Morning Edition": The segment includes comments from Conrad and Sen. Judd Gregg (R-N.H.) (Naylor, "Morning Edition," NPR, 2/6). Audio of the segment is available online.