President Bush Releases FY 2007 Budget Proposal; $36B Medicare Spending Reduction Expected To Have Difficult Approval Process

President Bush on Monday sent a fiscal year 2007 budget proposal to Congress that includes spending cuts for Medicare and other programs and that is expected to "be a tough sell, especially in an election year," USA Today reports (Wolf/Jackson, USA Today, 2/7). The $2.7 trillion budget proposal includes $36 billion in spending reductions for Medicare over five years. The Medicare spending reductions would total $105 billion over 10 years. 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%. Many of Bush's proposals follow recommendations from the Medicare Payment Advisory Commission, an independent federal panel. 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 make permanent tax cuts he instituted in his first term (Kaiser Daily Health Policy Report, 2/6). According to USA Today, the spending cuts for Medicare are "the budget's biggest single reduction" (Wolf/Jackson, USA Today, 2/7). The Medicare cuts "will not be enough to please fiscal conservatives, who complain about runaway federal spending, [but they] will be considered excessive by fiscal liberals, who want government to cover more health care costs for older Americans," the Philadelphia Inquirer reports (Thomma, Philadelphia Inquirer, 2/7). Proposals to reduce Medicare hospital reimbursement rates for an estimated savings of more than $8 billion over five years and to reduce nursing home reimbursements for an estimated savings of more than $5 billion over five years are likely to face "an uphill battle in Congress, where local hospitals hold great sway with lawmakers," the Wall Street Journal reports (Lueck, Wall Street Journal, 2/7). Bush's budget plan also would reduce Medicare home health care provider reimbursements, for savings of $3.5 billion over five years (Appleby, USA Today, 2/7).

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

• The elimination of an adjustment for beneficiaries with incomes greater than $80,000 that automatically raises income thresholds to reflect inflation. Because of this change, 3.8 million beneficiaries would pay an additional $48 to $262 per month by 2016 in premiums for Medicare Part B, which covers physician and outpatient costs. Savings are estimated at $40 million over the first five years of the change;
  
  
• An automatic reduction of federal spending on Medicare when federal expenses surpass 45% of the program's total cost for two consecutive years. According to Bush administration projections, this would first occur in 2017, provided that Congress passes Bush's budget proposal (Wall Street Journal, 2/7); and
  
  
• A requirement that oxygen equipment be purchased after 13 months rather than leased, for estimated savings of $6.6 billion over five years (Schuler, CQ Today, 2/6);
  

Medicaid Proposals
Bush's proposals that would affect Medicaid include:

• A cap on payments to local government health care providers at "no more than the cost of furnishing services," for estimated savings of $3.8 billion;
  
  
• Restrictions on the ability of states to assess taxes on providers as a way of increasing federal matching payments, for estimated savings of $2.1 billion;
  
  
• The end of payments for certain administrative services that the White House says already are funded through the Temporary Assistance to Needy Families program, for estimated savings of $1.8 billion;
  
  
• Efforts "to further reduce Medicaid overpayments for prescription drugs," for estimated savings of $1.3 billion;
  
  
• A reduction in federal reimbursement for services provided by certain Medicaid case managers, for estimated savings $1.2 billion; and
  
  
• Allowing states to "avoid costs for prenatal and preventive pediatric care claims where a third party is responsible through a noncustodial parent's obligation to provide coverage for a limited time," for estimated savings of $500 million (Carey, CQ HealthBeat, 2/6).
  

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

• A number of provisions related to encouraging the use of health savings accounts, for a combined cost of $60 billion over five years (Wall Street Journal, 2/7). The cost of the proposals, including tax incentives, is estimated at $156 billion over 10 years (Appleby, USA Today, 2/7);
  
  
• 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;
  
  
• 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 (Kaiser Daily Health Policy Report, 2/6).
  
  
• The elimination of a $10 million program that helps states provide hearing tests to newborn children from low-income families;
  
  
• The elimination of a program that provides defibrillators to communities; and
  
  
• The elimination of the National Children's Study, which was expected to track 100,000 children for 21 years (Neergaard, AP/Miami Herald, 2/7).
  

Agency Budgets
Bush's proposal includes the following budgets for health agencies:

• 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 (Kaiser Daily Health Policy Report, 2/6);
  
  
• A proposed budget of $1.5 billion for FDA, a $50 million increase from the FY 2006 FDA budget. FDA also would receive an additional $21 million in user fees assessed on industries it regulates;
  
  
• A proposed budget decrease of $179 million for CDC, with $128 million coming from construction projects. CDC Director Julie Gerberding said additional savings would come from a number of agency programs, which she did not specify;
  
  
• A proposed budget of $3.2 billion for the Indian Health Service, a $125 million increase from the FY 2006 IHS budget. The IHS Urban Indian Health Program would be eliminated, for savings of $33 million. HHS said beneficiaries under that program are covered through other HHS services;
  
  
• A proposed budget of $3.3 billion for the Substance Abuse and Mental Health Services Administration, a $71 billion reduction from the FY 2006 SAMHSA budget;
  
  
• A proposed budget of $88 million for the Office of the National Coordinator for Health Information Technology, up from $42 million allocated in the FY 2006 budget; and
  
  
• A $25 million reduction in funding for the Health Resources and Services Administration, representing 4% of the FY 2006 HRSA budget. HRSA would receive a $181 million funding increase to fund 300 new or expanded community health centers, as well as $188 million to fund a new HIV/AIDS initiative, including funds to test three million additional Americans for HIV and provide HIV/AIDS drugs to low-income individuals currently on state waiting lists. HRSA would experience a $198 million drop in funding for graduate education programs in children's hospitals. Spending for health programs in rural areas would drop from $160 million to $27 million (Reichard, CQ HealthBeat, 2/6).
  

Reaction
White House Budget Director Joshua Bolten said the budget proposal indicates Bush's goal "to focus on national priorities and tighten our belt elsewhere" (Jackson/Wolf, USA Today, 2/7). Senate Budget Committee Chair Judd Gregg (R-N.H.) said, "We must address the retirement needs of the massive baby boom generation, grapple with the skyrocketing costs of health care and find some balance that will not leave future generations with a bill they cannot pay" (Wolf/Jackson, USA Today, 2/7). Senate Labor-HHS Appropriations Subcommittee Chair Arlen Specter (R-Pa.) said, "The president's FY 07 budget proposal is going to require substantial modifications by Congress" (Cohn, CongressDaily, 2/7). Senate Finance Committee Chair Chuck Grassley (R-Iowa) said that it "wasn't an easy legislative accomplishment" to get the FY 2006 budget reconciliation bill (S 1932) passed, which included Medicare and Medicaid cuts. Grassley added, "Any more reductions of a significant scope could be difficult this year" (Wall Street Journal, 2/7). Rep. John Spratt (D-S.C.) said Bush's budget comes "down on those who need health care the most and have it the least -- the elderly and the poor," adding, "I don't think it's going to happen in the next year, and that's one more reason that the president's budget is not a realistic statement of the choices that lie before us" (CongressDaily, 2/7).

More Comments
Barbara Kennelly, president of the National Committee to Preserve Social Security and Medicare, said the president's budget proposal is "an effort to fundamentally change the way we look at Medicare" (Wolf/Jackson, USA Today, 2/7). Dick Davidson, president of the American Hospital Association, said Bush's budget is "a step backwards in protecting access to care for all Americans" (Wall Street Journal, 2/7). Bill Novelli, president of AARP, said, "Arbitrary caps on Medicare will mean that providers or beneficiaries will have to make up the difference through lower payment rates or higher cost sharing" (Schuler, CQ Today, 2/6). Paul Ginsburg, an economist with the Center for Studying Health System Change, said the Medicare payment reductions "see[m] to be a very modest reduction." Chip Kahn of the Federation of American Hospitals said, "This is no time to cut Medicare payments for services," adding that many hospitals are facing financial pressure. Joseph Antos of the American Enterprise Institute said that while he supports HSAs, Bush's proposal is "a considerable amount of money" and "a more expansive proposal in terms of committing federal resources to health care than one could have anticipated from the State of the Union address" (Appleby, USA Today, 2/7).

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

Broadcast Coverage
Two broadcast programs reported Medicare spending in Bush's budget proposal:

• APM's "Marketplace Morning Report": The segment includes comments from Maya MacGuineas, president of the Committee for a Responsible Federal Budget (Wicai, "Marketplace Morning Report," APM, 2/6). The complete segment is available online in RealPlayer.
  
  
• NPR's "Morning Edition": The segment includes comments from Leavitt; Kahn; John Rother, policy director at AARP; and Alec Vachon, a now a political consultant and former health aide to Senate Republicans (Rovner, "Morning Edition," NPR, 2/7). The complete segment is available online in RealPlayer. Expanded NPR coverage of Bush's fiscal year 2007 budget proposal is available online.