President Bush To Propose $2.7T FY 2007 Budget Proposal, Including $36B in Medicare Spending Reductions

President Bush on Monday is expected to release a $2.7 trillion budget proposal for fiscal year 2007 that includes $36 billion in spending reductions for Medicare over five years, the AP/Miami Herald reports (Crutsinger, AP/Miami Herald, 2/6). The Medicare spending reductions would total $105 billion over 10 years (Goldstein, Washington Post, 2/5). Bush's Medicare proposal would reduce spending on the program -- which the Congressional Budget Office estimates at $2.56 trillion over the next five years -- by about 1.4% (Lueck, Wall Street Journal, 2/6). Many of Bush's proposals follow recommendations from the Medicare Payment Advisory Commission, an independent federal panel (Pear, New York Times, 2/4). The proposed cuts "represen[t] a sharp turnabout" for Bush, who last year said Medicare should not be altered during the implementation of the Medicare prescription drug benefit, the Washington Post reports (Washington Post, 2/5). According to the AP/Herald, Bush's proposal aims to eliminate or reduce spending in 141 programs for savings of $14.4 billion in 2007. The budget plan would help Bush reach a goal of cutting the budget deficit in half by the end of his second term and "preserv[e] his other major priority: making permanent his first-term tax cuts," the AP/Herald reports (AP/Miami Herald, 2/6).

More Medicare Proposals
Bush's budget proposals that would affect Medicare include:

• A reduction in the hospital reimbursement rate from about 3.4% to slightly below 3%, for estimated savings of $20 billion over five years (Havemann, Los Angeles Times, 2/6);
  
  
• Increased monthly premiums for higher income beneficiaries under Medicare Part B, which covers physician and outpatient care. The income requirements set to be implemented under current law would not be linked to inflation, so that "many more [beneficiaries] would be affected [by the higher premiums] in the future," the Wall Street Journal reports (Lueck, Wall Street Journal, 2/6); and
  
  
• A freeze in payments to nursing homes and home health agencies, as well as lower payments for the use of oxygen equipment (New York Times, 2/4).
  

Other Health Proposals
Other budget proposals related to health care include:

• Larger tax breaks for individuals who switch to health plans with deductibles of $1,050 or more, which are a requirement to qualify for health savings accounts, in an effort to "make HSAs more popular with employers, large and small, and with individuals who pay for health benefits on their own," the Journal reports;
  
  
• A modification to HSAs that would allow employers to contribute more money to the accounts of workers with greater health care expenses;
  
  
• A proposal to give tax credits to low-income uninsured people who have high-deductible health plans (Lueck, Wall Street Journal, 2/6).
  
  
• An allocation of $2.65 billion in funds to protect the nation against a pandemic flu, which would be added to $3.3 billion already approved by Congress. The funding would be used to purchase flu vaccines for every U.S. resident and to provide antiviral drugs to 25% of the population in an emergency;
  
  
• A proposed budget of $28.6 billion for NIH, the same as the FY 2006 NIH budget, including small cuts to 18 of 19 NIH institutes. The National Institute of Allergy and Infectious Diseases -- leading the research on pandemic flu and bioterrorist attacks -- would receive an increase. The National Cancer Institute would receive $4.75 billion, $40 million less than its FY 2006 budget. The National Heart, Lung and Blood Institute would receive $2.9 billion, $21 million less than its current budget;
  
  
• An increase in health care costs for middle-income veterans with no service-connected disability, including higher copayments for prescription drugs and a new fee for the use of government health care;
  
  
• A funding decrease for the Office of Minority Health and programs that train health care professionals; and
  
  
• The elimination of programs to treat people who have traumatic brain injuries and to improve children's emergency medical services (Pear, New York Times, 2/5).
  

Reaction
Glenn Hackbarth -- chair of MedPAC, which recommended reducing the Medicare hospital reimbursement rate -- said, "Hospital cost increases have been unjustifiably rapid" (Los Angeles Times, 2/6). Senate Budget Committee Chair Judd Gregg (R-N.H.) said, "It is good health policy and good budget policy to try to do something about the growth of Medicare" (AP/Miami Herald, 2/6). Senate Minority Leader Harry Reid (D-Nev.) said, "The president's priority is to protect HMO and drug company profits while shifting costs to beneficiaries and providers. Cutting funding for hospitals and other providers won't solve the health care crisis." An unnamed Republican aide said, "To think that we are going to get $36 billion out of Medicare in an election year, it's going to be a challenge."

Additional Comments
Charles Kahn, president of the Federation of American Hospitals, said many hospitals already are losing money on Medicare reimbursements, adding that Bush's proposal "is the wrong policy at the wrong time" (Washington Post, 2/5). William Dombi, vice president of the National Association for Home Care, said Medicare reimbursement freezes to home care agencies would reduce access to care in some regions. Nursing home operators "said it would be absurd to freeze their Medicare payments at a time when patients, their relatives and the Bush administration were demanding improvements in the quality of care," the New York Times reports. However, MedPAC officials said current rates for home care agencies and nursing homes were "more than adequate," the Times reports (New York Times, 2/4). Robert Greenstein, executive director of Center on Budget and Policy Priorities, said Bush's tax credits for HSA account holders was "tilt[ed] toward more affluent people" (Lueck, Wall Street Journal, 2/6). Kim Elliott, deputy director of the Trust for America's Health, said Bush's pandemic flu proposal follows the "professional judgment of scientists and medical and public health experts," but she added that the budget does not include "enough on efforts to prevent chronic diseases and to find cures" (New York Times, 2/5).

FDA 'Critical Path' Program To Receive Funding
FDA's "Critical Path" program, which was created "to improve and smooth the process of developing new treatments," is expected to receive less than $10 million in Bush's budget proposal, the Journal reports. The funding would be the program's first-ever allotment. Deputy FDA Commissioner Janet Woodcock said the agency's role under the program would be as a "stimulator or convener" for the development of new drugs, and added that the agency would create internal regulations to avoid conflicts of interest. The Journal reports that conflicts could be created "because the new research efforts, which typically will be spearheaded by outside nonprofit groups, will sometimes require support from drug companies" (Wilde Mathews/Hensley, Wall Street Journal, 2/6).

Results of HSAs Examined
The Washington Post on Monday examined satisfaction with HSAs offered by the U.S. Office of Personnel Management over the last three years. The 33 HSAs and other consumer-driven plans offered by the Federal Employees Health Benefits Plan have achieved "modest" results, with about 24,000 beneficiaries enrolling in such plans. Officials said that the number of enrollees is increasing. A Government Accountability Office report last week said that enrollees in the federal plans were generally younger and wealthier than overall beneficiaries. A GAO study last year found that postal workers enrolled in HSAs were satisfied with their access to care and claims processing, but satisfaction levels were lower for "their ability to find and understand information about the plan," the Post reports (Lee, Washington Post, 2/6).

Additional information about the budget is available online from the Office of Management and Budget.

Broadcast Coverage
APM's "Marketplace Money" on Friday reported on HSAs. The segment includes comments from a spokesperson for a lobbying group that promotes HSAs; a federal employee enrolled in a health plan with a HSA; Paul Fronstin, director of the Health Research and Education Program at the Commonwealth Fund; and Bill Vaughan, senior policy analyst at Consumers Union (Wicai, "Marketplace Money," APM, 2/3).

The complete segment is available online in RealPlayer.