Revised August 9, 2006
BUDGET PROCESS BILL WOULD RESULT IN
DEEP CUTS IN MEDICARE AND MEDICAID
By Richard Kogan, Leighton Ku, Allison Orris, and Andy Schneider
Summary
The Senate Budget Committee has approved a bill (S. 3521) that would
radically alter federal budget procedures and could lead to deep cuts over time
in the vast majority of domestic programs, including Medicaid, Medicare, and
SCHIP. While the odds are slim that the legislation will be considered by the
full Senate this year, the bill is nevertheless important because it appears to
reflect an emerging consensus among a growing number of conservatives about how
to start addressing deficits while preserving the costly tax cuts that have been
enacted since 2001. Investor’s Business Daily has described this
legislation — which was introduced by Senate Budget Committee Chairman Judd
Gregg, has been co-sponsored by 26 other Senators (including Senate Majority
Leader Bill Frist), and was approved by the Budget Committee with the support of
all 12 majority party members — as a “vision statement.”[1]
The new budget procedures that the bill
would establish are designed to lead to substantial reductions over time in
projected spending for the vast majority of domestic programs, and to extract
especially large savings from Medicare and Medicaid. As explained below, the
bill’s provisions could lead to reductions in Medicare and Medicaid of
unprecedented depth. A complete analysis of the legislation can be found at:
https://www.cbpp.org/6-19-06bud.pdf.
The legislation also would force substantial reductions in appropriations for
discretionary health programs, ranging from veterans’ health care to health
research funded by the National Institutes of Health. The legislation would
lock in, for the next three years, the overall discretionary funding levels
proposed in President Bush’s most recent budget. To hit those levels, the
President’s budget proposes $66 billion in domestic discretionary cuts over the
next three years (relative to the 2006 funding levels for those programs,
adjusted for inflation), with the cuts growing deeper each year. By 2009, the
President’s proposed cuts would hit every domestic discretionary program area in
the budget, except for space, science and technology.
[2]
In addition, the legislation would give
the President “line-item veto” authority. Although such authority is often
described as a mechanism to address wasteful appropriations “earmarks” or
“pork-barrel spending,” the line-item veto provisions in the Budget Committee’s
bill go far beyond that. These provisions not only would give the President
increased power to seek to terminate funding for entire discretionary programs,
but also would grant him new authority to single out and try to cancel recently
enacted provisions of law that would improve or expand entitlement programs,
including Medicare and Medicaid. The President could seek to “veto” such
entitlement provisions even if their cost was fully defrayed by offsetting cuts
contained elsewhere in the same entitlement law.[3]
This analysis focuses, however, not on the
bill’s provisions relating to discretionary programs but on the two components
of the bill that would have the largest impacts on Medicare and Medicaid.
Fixed Deficit Targets Would Force Deep Cuts in Entitlement
Programs, Nearly Two-thirds of Which Would Come from Medicare and Medicaid
The bill would establish a fixed deficit target for each year and would
enforce those targets through automatic, across-the-board cuts in all
entitlement programs other than Social Security. The automatic cuts would be
triggered in any year in which the deficit target otherwise would be missed. To
reach the deficit targets the bill would set for 2012 and succeeding years would
require over $200 billion a year in budget cuts.
[4]
- To reach the deficit target for 2012
after making the large cuts in discretionary programs that the bill envisions,
entitlement cuts of unprecedented magnitude would be needed. Projected
expenditures for all entitlement programs except Social Security would have to
be cut by 15.6 percent (unless discretionary programs were cut even more
deeply than the bill envisions, tax cuts were scaled back, or other taxes
were raised).
- A reduction of 15.6 percent in Medicare would amount to a cut of
$83 billon in 2012. This is the amount by which Medicare would have to be
reduced if all entitlements (except Social Security) were cut by the same
percentage, which is how the bill’s automatic entitlement reductions would
work. Under the automatic cuts, the reductions in Medicare would likely be
secured primarily (or entirely) by cutting payments to Medicare providers and
Medicare plans.
- In Medicaid, a 15.6 percent reduction would translate into a
federal funding cutback of $45 billion in 2012. This reduction would be
achieved by cutting federal Medicaid matching payments to states by that
percentage.
- The cuts in Medicare, Medicaid, and other entitlements would then grow
deeper each year after 2012. By 2016, the cut in entitlement programs (other
than Social Security) needed to hit the bill’s deficit target would be 17.7
percent. Over the ten years from 2007-2016, total entitlement cuts of $1.6
trillion would be needed to hit the deficit targets (unless taxes were
raised or discretionary programs cut even more deeply). If all entitlement
programs were reduced by the same percentage, the cumulative cuts over the
ten-year period would reach $693 billion in Medicare and $360 billion in
Medicaid. Cuts to these programs account for nearly two-thirds of all
the entitlement cuts under the legislation. (See Figure 1)
- The withdrawal of such large amounts of funding from the health-care
sector not only would create serious difficulties for the over 100 million
Americans who are expected to be enrolled in Medicare and Medicaid — and the
hospitals, physicians, nursing homes, and pharmacies who serve them — but also
would have broader effects that would be likely to ripple throughout the U.S.
health care system.
Redefining Medicare and Medicaid “Solvency”
to Set the Stage for Deep Program Cuts
The Senate Budget Committee bill also would establish new definitions of
Medicare and Medicaid solvency and create a commission to propose measures to
restore “solvency” (as so defined) to these programs, as well as to Social
Security.
- In place of the definition of solvency that has applied to Medicare since
its inception in 1965 —that the revenues to support the Medicare Hospital
Insurance program be sufficient to meet the costs of that program — the bill
would classify the entire Medicare program as being “insolvent” whenever more
than 45 percent of total Medicare expenditures are financed by general
revenues. To achieve this new definition of “solvency” — and to alter
Medicare so that no more than 45 percent of its costs are funded by general
revenues in future decades — would require Medicare cuts (or payroll tax
increases) of stunning dimensions. For example, if the savings to meet this
target were taken entirely out of payments to providers, those payments would
have to be reduced below projected levels by 31 percent by 2030.
- The bill also would establish a definition of solvency for the Medicaid
program. Medicaid would be classified as “insolvent” in any year after 2012
in which its costs grew faster than the growth rate of the Gross Domestic
Product. To satisfy the bill’s definition of Medicaid “solvency” would
require cuts in projected Medicaid expenditures of 22 percent by 2020 and 50
percent by 2042.
Deficit Targets and “Solvency” Standards Would Shift Costs
to States, Family Members, and Providers
These provisions of the bill would result in a “double whammy” for Medicare
and Medicaid. Meeting the new “solvency” definitions would not protect Medicare
and Medicaid from the automatic across-the-board cuts in entitlement programs
that would be triggered when the deficit target was exceeded. The automatic
cuts would be in addition to the cuts made to restore “solvency.”
Conversely, even if Medicare and Medicaid were subject to very large automatic
across-the-board cuts to meet the bill’s deficit targets, those cuts eventually
would not be sufficient to meet the bill’s definitions of Medicare and Medicare
“solvency.” Additional cuts would be needed to meet the “solvency” standards
the bill would set.
These reductions in federal funding for Medicare and Medicaid would take
effect at the same time that an aging baby-boom population was beginning to rely
on these programs for financial protection against the rising costs of health
care and long-term care. Cutting projected expenditures in Medicare and
Medicaid by these large amounts would not stop the aging of the baby boomers or
reduce their need for health care or long-term care. Nor would it end
health-care inflation or stop the technological advances that are contributing
heavily to the continued large increases in per capita health care
expenditures. Cutting federal support for Medicare and Medicaid deeply would,
however, force someone other than the federal government— namely, states and
family members — to pick up a hefty share of the health-care costs that the
federal government was shedding. It also could compel health-care providers to
absorb the remaining share of those costs. And it almost certainly would lead
many low-income and elderly and disabled Americans to go without various health
care treatments and services they needed.
The Fixed Deficit Targets and the Automatic Entitlement Cuts
The deficit targets that the Budget Committee legislation would establish
would be set at 2.75 percent of the Gross Domestic Product (the basic measure of
the size of the economy) in 2007 and would shrink to 0.5 percent of GDP in 2012
and years thereafter. If the Office of Management and Budget projected that the
deficit target for a year would be missed and Congress did not enact legislation
producing large enough savings to hit the target, across-the-board cuts in all
mandatory programs other than Social Security would be triggered automatically.
The automatic cuts would be set at whatever percentage cut was needed to reach
the deficit target.
Assuming that the President’s tax cuts (except for estate tax repeal) are
extended and relief from the Alternative Minimum Tax is continued, the projected
deficit in 2012 will exceed the bill’s target for that year by more than $200
billion even after the cuts that the bill calls for in discretionary programs
are taken into account.[5]
This means that unless Congress scaled back the President’s tax cuts, raised
other taxes, or cut discretionary programs even more deeply than the bill calls
for, $206 billion in savings from entitlement reductions would have to be
produced for 2012 alone. This figure for a single year dwarfs the $39 billion
in savings over five years that were contained in the Deficit Reduction
Act that Congress narrowly approved earlier this year.
If Congress were unable to pass legislation achieving cuts of this magnitude,
as would likely be the case, automatic entitlement cuts would be triggered.
Medicare and Medicaid would be cut by $128 billion in 2012, absorbing nearly
two-thirds of all the entitlement cuts under the legislation. Over the next
ten years (2007-2016), a cumulative total of $1.6 trillion in entitlement cuts
would be required.[6]
This analysis focuses on the impact on Medicare and Medicaid.
1. Implications for Medicare
Like all entitlement programs other than Social Security, Medicare would be
subject to automatic, across-the-board cuts in any year that the deficit
reduction target otherwise would be missed. The Budget Committee bill imposes
no limit on the percentage by which Medicare and other entitlement
programs could be cut to meet the deficit targets.
Assuming that the cuts were distributed evenly across all entitlement
programs — i.e., that all entitlements except Social Security were reduced by
the same percentage, which is how the automatic cuts would work — Medicare would
have to be cut by 15.6 percent, or $83 billion, in 2012, and by larger amounts
in subsequent years.[7]
This would be equivalent to reducing projected Medicare expenditures by an
average of about $1,750 per beneficiary in 2012. (Note: These cuts would be in
addition to the reductions in Medicare physician payment levels scheduled under
current law.)
The Budget Committee bill does not specify how the automatic cuts in Medicare
would be achieved. As a practical matter, automatic reductions of this
magnitude probably could most readily be implemented through cuts in payments to
Medicare providers, managed care plans, and drug plans.[8]
The bill is silent on whether such payment reductions would have to be applied
on a pro rata basis, with hospitals receiving the same 15.6 percent reduction in
their reimbursements as physicians, Medicare Advantage plans, and Part D drug
plans, or whether different groups of providers and plans could be subject to
differing percentage reductions. If a 15.6 percent reduction were achieved
through reductions in provider payments, and the reductions were applied on a
pro rata basis, then:
- Medicare payments to hospitals would be cut by $28 billion in 2012;
- payments to physicians would be cut by $10 billion (in addition to the
cuts scheduled under current law);
- payments to managed care plans would be cut by $14 billion; and
- payments to Part D drug plans (including subsidy payments for low-income
Medicare beneficiaries) would be cut $16 billion.
The remaining cuts needed to achieve the $83 billion in reductions would come
from payments to other groups of providers, such as skilled nursing facilities
and home health agencies.
Reductions of this magnitude in payments to Medicare providers and plans
would be unprecedented, and the effects on provider and plan behavior are
unknown. It seems safe to assume, however, that the larger the Medicare patient
volume, the greater the impact such reimbursement cuts would have on a
provider’s or plan’s financial viability. Hospitals, physician groups, and
managed care plans that are highly dependent upon Medicare revenues would have
more difficulty adjusting to cuts of this magnitude than providers for whom
Medicare patients constitute a small share of their operations. The adjustments
that high-volume Medicare providers would be forced to make could markedly
affect the accessibility and quality of the care available to their Medicare
patients.
If substantial numbers of providers and managed care plans responded to the
large reductions in Medicare payments by abandoning the Medicare market, the
choice of providers available to Medicare beneficiaries could be restricted
significantly. In addition, those providers that continued to serve Medicare
patients under the reduced reimbursement rates would generally have to lower the
amount and quality of care they provided to beneficiaries or to increase the
prices they charged to their privately-insured patients to make up for their
Medicare losses.
Similarly, some Medicare prescription drug plans likely would withdraw from
the program, while those remaining in it likely would restrict more sharply the
range of medications they offered, increase the amounts that beneficiaries were
required to pay, and/or reduce the amounts they paid to pharmacies. The overall
effect likely would be an increase in how much Medicare beneficiaries had to pay
for medications and greater restrictions on the range of medications available
to them through the plans.
In this environment, Medicare beneficiaries with illnesses or conditions that
are very costly to treat could find themselves disfavored as patients. Another
likely effect would be that private insurers and employers who had to pay higher
charges to cross-subsidize providers for their Medicare losses would face
greater pressure to raise their own premiums, increase patient cost-sharing, or
reduce covered benefits.
2. Implications for Medicaid
Medicaid, too, would be subject to the bill’s automatic cuts. As with
Medicare and other entitlements, there would be no limit on the percentage by
which federal Medicaid funding could be reduced to meet the bill’s deficit
targets. If the deficit targets were met through the automatic cuts (or any
other approach that spread the pain evenly across entitlement programs), federal
Medicaid expenditures would have to be cut 15.6 percent — or $45 billion — in
2012.
The Budget Committee legislation does not specify how the automatic cuts
would be carried out in Medicaid. Unlike the Medicare program, in which federal
funds flow (through fiscal agents) directly to providers and managed care plans,
Medicaid is a federal-state matching program. Federal payments are made to the
states, which operate the program on a day-to-day basis. The only way for the
federal government to automatically achieve a specified percentage reduction in
Medicaid expenditures is to reduce the payments it otherwise would make to each
state by that percentage. Each state would then have to decide whether to
respond to the loss of federal matching payments by reducing eligibility,
increasing cost-sharing, reducing benefits, cutting payment rates for providers,
or increasing its own level of funding to make up for the loss of federal funds.
Under Medicaid’s financing structure, an across-the-board reduction in
federal payments to states would result in greater losses, per dollar of
Medicaid expenditures, for poorer states than for affluent ones. Assume that
two states each spend $200 million providing health care services for Medicaid
beneficiaries during a calendar quarter and that one of these is a relatively
high per capita income state — and has a 50 percent federal Medicaid matching
rate — while the other state has low per capita income and a 70 percent federal
Medicaid matching rate. (The matching rates vary from 50 percent to 76 percent,
based on a state’s per capita income.) The 50-percent-match state would
normally receive $100 million in federal matching payments for the $200 million
in Medicaid costs that it incurred. Under a 15.6 percent automatic cut, this
state’s federal Medicaid funding would be reduced by $15.6 million. In
contrast, the poorer state would normally receive $140 million in federal
matching payments for its $200 million in costs and hence would face a loss of
$21.8 million in federal funds (15.6 percent of $140 million). This is a $6.2
million larger loss than the affluent state would bear.
There is no precedent for reducing federal Medicaid matching payments to
states by the amounts that the bill contemplates. The $45 billion in automatic
Medicaid cuts that could be triggered in 2012 alone compares to a projected
reduction in federal Medicaid costs of $26.5 billion over ten years under the
Deficit Reduction Act enacted earlier this year.
There also is no precedent for the types of policy changes that would
have to be made to achieve savings of this magnitude. The $45 billion in
federal Medicaid reductions in 2012 is equivalent to what would be saved that
year by cutting payments for inpatient hospital services in half. It also is
equivalent to what would be saved by eliminating about two-thirds of all
payments to nursing homes for low-income seniors.
Because states have broad discretion in administering their Medicaid
programs, they would differ in their responses to these reductions in federal
funding. Each state would decide how to deal with the loss of federal funds,
whether by cutting eligibility, increasing patient cost-sharing, limiting the
scope of services, and/or reducing payments to providers and managed care
plans. To the extent that states restricted eligibility, more low-income
Americans would become uninsured, causing the demand for uncompensated care to
rise, especially at emergency rooms.[9]
To the extent that states lowered payments to providers or managed care plans,
some providers and plans likely would limit their participation in Medicaid;
other providers might withdraw altogether. Medicaid beneficiaries with
high-cost illnesses or conditions could be placed at particular risk of losing
access to providers.
Commission to Determine the “Solvency” of Medicare and Medicaid
The bill also would create a commission charged with developing a plan to
ensure the long-term “solvency” of Social Security, Medicare, and Medicaid. The
legislation would establish new definitions of “solvency” for Medicare and
Medicaid.
The “solvency” definitions in the bill bear no relationship, however, to the
actual financial status of Medicare and Medicaid. And the definitions are
designed in such a way that meeting these new “solvency” standards would require
deep cuts in these programs.
The commission would have 9 members appointed by Republican leaders and 6
members appointed by Democratic leaders. Ten votes would be needed to approve a
commission plan. This would create a risk that the commission’s 9 Republican
appointees could hang together and seek to entice a lone Democratic appointee to
get to 10 votes. The plan that the commission would produce would then be moved
under “fast-track procedures” in Congress with no filibusters permitted,
although 60 votes would be needed to bring the legislation to a final Senate
vote.
1. Implications for Medicare
Medicare would be deemed to be “insolvent,” even if the Medicare trust fund
still had hundreds of billions of dollars in assets, once at least 45 percent of
total Medicare costs were financed with general revenues. As a result, instead
of allowing commission members to recommend ways to ensure both that Medicare
remains solvent, as solvency has been understood and defined throughout the
program’s history,[10]
and that there is a sustainable long-term balance between overall Medicare costs
and the total resources available to fund those costs, the Budget Committee
legislation would compel the commission to focus on ways to ensure that no more
than 45 percent of Medicare financing came from general revenues.[11]
This new definition of Medicare “solvency”
has no actuarial basis, and it bears no relationship to how Medicare is funded
under federal law. By law, Medicare physicians’ coverage and the new Medicare
prescription drug benefit are supposed to be financed by general revenues
(and beneficiary premiums), rather than by dedicated revenues (i.e., payroll
taxes).
This new definition appears to be designed to achieve an ideological goal.
Its restriction on general-revenue financing appears to be intended to ensure
that increases in the federal income tax (such as increases from scaling back a
portion of the recent tax cuts for high-income households) could not be used to
address even a fraction of Medicare’s long-term financing problems, as part of a
larger Medicare reform effort.
The implications for Medicare would be far-reaching. The 45-percent
limitation on general-revenue financing would bar increases in general revenues
to help finance the program. Increases in regressive payroll taxes would be
allowed, but increases in progressive income taxes would not be.
As a consequence, if policymakers wanted to meet the 45-percent threshold
without raising regressive payroll taxes, their options would be limited. They
could increase beneficiary premiums and cost-sharing, with the increases growing
larger each year and ultimately reaching very high levels. They could tighten
Medicare eligibility rules by raising the age of eligibility or increasing the
24-month waiting period for disabled Social Security beneficiaries to qualify.
They could reduce the scope of the medical services that Medicare covers. And
they could freeze or cut payments to hospitals, physicians, and other Medicare
providers and to Medicare managed care organizations and the new Part D drug
plans. Whatever option or combination of options they chose, the cutbacks would
need to grow deeper with each passing year to continue meeting the new
“solvency” test.
Medicare clearly faces serious long-term financial problems. The Social
Security and Medicare trustees project that the Medicare Hospital Insurance
program (Medicare Part A) will become insolvent in 2019. In addition, Medicare
expenditures are projected to rise rapidly in coming decades as the baby-boomers
retire and health care costs continue to mount. The nation needs an honest and
thoughtful debate on Medicare reform.
But the 45-percent measure would skew this debate, ensuring that progressive
revenue increases are not permissible options for the commission — and
ultimately Congress — to consider. Having to meet this artificial “solvency”
standard would place a larger-than-necessary share of the burden of dealing with
rising Medicare costs on increases in the premiums, deductibles, and co-payments
that beneficiaries pay, increases in the payroll taxes that ordinary workers
pay, reductions in Medicare eligibility and benefits, and reductions in the
payments made to Medicare providers.
2. Implications for Medicaid
The bill also establishes a definition of Medicaid “solvency.” This is a
particularly dubious undertaking; Medicaid has no trust fund or dedicated
revenues, and the concept of “solvency” for a program funded by general revenues
is as inapplicable to Medicaid as it would be to programs operated by the
Department of Defense or the Department of Education. Nevertheless, the bill
would impose a new “solvency” standard on the program, under which Medicaid
would be considered insolvent in any year after 2012 in which Medicaid
expenditures rose at a faster percentage rate than the Gross Domestic Product.
This definition fails to reflect the factors that are the principal drivers
of Medicaid cost growth — inflation in the cost of health care services, the
aging of the population, and the erosion of employer-based coverage. The bill’s
so-called “solvency” definition is simply an artifice to restrict the federal
government’s contribution to the Medicaid program to levels well below what is
needed to keep pace with the aging of the population and rising health care
costs.
The Congressional Budget Office projects, for example, that over the
seven-year period from fiscal year 2007 through fiscal year 2013, the Gross
Domestic Product will grow by an average of 4.9 percent per year while Medicaid
costs will grow by an average of 7.8 percent annually. (These CBO estimates of
Medicaid growth reflect the savings expected under the Deficit Reduction Act.)
To meet the bill’s definition of Medicaid “solvency,” the rate of growth in
Medicaid spending would have to be reduced sharply. In 2013, for example, it
would have to be reduced from CBO’s projected 7.7 percent growth rate for that
year to 4.5 percent (the projected GDP growth rate for that year). This would
translate into a reduction in federal Medicaid expenditures of $8 billion in
that year, or more than twice the $4.3 billion in federal savings that the
Deficit Reduction Act would achieve in 2013.
More importantly, this $8 billion would be a mere pittance compared to the
vastly larger amounts by which federal Medicaid expenditures would have to be
reduced in subsequent years. Limiting the growth in federal Medicaid funding to
the growth rate in GDP year after year would require cuts of extraordinary depth
in Medicaid over time — cuts of 22 percent by 2020, 36 percent by 2030, and 50
percent by 2042. (These cuts are relative to CBO’s estimates of Medicaid costs
under current law.)
The magnitude of the Medicaid cuts that would be required to meet the bill’s
“solvency” standard would be so great that the commission would likely see
little alternative to proposing the abolition of Medicaid in its present form
and its replacement with a block grant to states under which federal block-grant
funding would rise only at the rate of GDP. Over time, that would represent a
cost-shift to states of stunning dimensions — probably the largest cost-shift
from the federal government to the states in U.S. history. Unless states could
finance the large health-care costs that the federal government was shedding
through very big state tax increases or severe cuts in other parts of state
budgets such as education, they would have little alternative but to slash their
state Medicaid programs deeply over time.
Shifting the Costs of Care to States, Families, and Providers
In its December 2005 analysis of the long-term budget outlook, CBO explained
that “Future spending growth in [Medicare and Medicaid] will be driven by two
fundamental factors: the aging of the population and growth in per-capita
medical costs. The Medicare population will expand rapidly as baby boomers turn
65 and life expectancies continue to rise. Those demographic trends are also
projected to increase Medicaid’s costs by boosting demand for long-term care.”[12]
CBO also pointed out in testimony before
the Senate Budget Committee earlier this year that health care costs alone will
continue to rise faster than GDP for the foreseeable future. CBO concluded that
this reality, coupled with the projected increase in the percentage of the
population over age 65, means that Medicare and Medicaid costs will necessarily
rise at significant rates.[13]
Given the CBO analysis and growing concern
about rising entitlement spending, the Budget Committee bill appears designed to
induce deep reductions in projected Medicare and Medicaid expenditures. The
bill’s deficit targets and automatic cuts in entitlement programs, and its
“solvency” provisions, could lead to cuts in Medicare and Medicaid of startling
proportions.
But sharply cutting federal support for Medicare and Medicaid over time will
not stop the aging of the population or the accompanying increases in the need
for health care and long-term care. Nor will it significantly reduce the rising
costs of health care services, which are driven largely by advances in medical
technology. The bill offers nothing to address the causes of growth in Medicare
and Medicaid costs, other than budget-driven reductions in the federal
government’s share of those costs.
Sharp Effects on Long-term Care
The large reductions in federal funding for Medicaid that would likely occur
under the bill would place particular pressure on nursing home care and home and
community-based services. Medicaid is the largest single purchaser of nursing
home care. It is projected to finance nearly half of nursing home costs by
2015.[14]
The bill’s cuts in federal Medicaid
funding would leave states with the choice of substantially increasing their own
spending for long-term care services or placing the burden of making up for the
loss of federal support on the backs of the families of frail elderly and
disabled people who need such care. Given the magnitude of the federal
cost-shift that would result under the bill, it seems likely that many states
would conclude they had little choice but to shift substantial costs to
beneficiaries and their families. States could seek to accomplish this by
restricting eligibility for long-term care services, limiting the types of
services they covered, and reducing payments to long-term-care providers while
authorizing the providers to charge beneficiaries and their families
substantially more.
Conclusion
CBO’s Acting Director Donald Marron recently testified that in light of the
aging of the U.S. population and rapidly rising health care costs, a
“substantial reduction in the growth of spending and perhaps a sizeable increase
in taxes as a share of the economy will be necessary for fiscal stability to be
at all likely in the coming decades.”[15]
The Senate Budget Committee bill focuses exclusively, however, on cutting
projected federal expenditures, while shielding tax cuts from fiscal
discipline. In fact, under the bill, anything that would increase the deficit —
including more tax cuts (as well as a recession, a war, or a national disaster)
— would push the deficit farther above the deficit target and thereby trigger a
requirement for even deeper cuts in entitlement programs such as Medicare
and Medicaid.
Furthermore, while targeting Medicare and Medicaid for cuts of unprecedented
depth, the bill would do nothing to address the sources of Medicare and Medicaid
cost growth and the underlying problem of rapid health-care cost inflation.
Through deep cuts in federal funding for Medicare and Medicaid, the bill seeks
instead simply to reduce the federal government’s financial exposure for the
growth in health care costs and the aging of the population. The result would
be a massive shift of the costs of health care for low-income and elderly and
disabled people — from the federal government to states, beneficiaries’
families, and medical care providers — and the likely loss of access to needed
health care services for millions of Americans.
End Notes:
[1]
Jed Graham, “GOP Budget Hawks Make Push to Require Broad Spending Cuts,”
Investor’s Business Daily, July 3, 2006, p. A1.
[2]
The discretionary caps that the bill would establish are discussed in more
detail in Arloc Sherman, James Horney, and Matt Fiedler, “Proposed Discretionary
Caps Would Hit States Hard,” Center on Budget and Policy Priorities, July 5,
2006.
[3] The line-item veto legislation
proposed in the bill is discussed in more detail in Richard Kogan, “Senate
‘Line-Item Veto’ Proposal Invites Abuse by Executive Branch,” Center on Budget
and Policy Priorities, July 12, 2006.
[4]
The bill would set the deficit target at 0.5 percent of GDP for 2012 and all
succeeding years. Estimates of the entitlement cuts assume that the tax cuts,
including relief from the Alternative Minimum Tax, are extended (except for the
estate tax, which is assumed to be structured as provided in legislation that
the House of Representatives passed on July 29, 2006). The estimates also
assume that the bill’s limits on discretionary spending are adhered to through
2009 and that discretionary grows with inflation thereafter. All estimates are
based on CBO’s latest projections.
[5]
These deficit projections are based on the latest projections issued by CBO. In
these projections, we assume that most, but not all, of the estate tax will be
repealed, as prescribed under legislation approved by the House of
Representatives on July 29, 2006.
[6]
The need for $1.6 trillion in entitlement cuts assumes that in years after 2009,
overall funding for discretionary programs would be held to the 2009 cap level
that the bill would establish, adjusted only for inflation.
[7] This calculation is based on the
March 2006 CBO baseline, net of Medicare premiums but not clawback payments.
[8]
In theory, net Medicare expenditures could be reduced by increasing beneficiary
premiums under Parts A, B, or D. In the absence of specific directions in the
Budget Committee bill, however, we assume that the automatic cuts would be
implemented in a way that minimizes changes in the Medicare program, i.e., by
reducing payments to providers by the necessary percentage.
[9]
For example, recent reports from Tennessee confirm that TennCare cutbacks
instituted in that state led to substantial increases in hospital emergency room
and uncompensated care costs. Todd Pack, “Charity Costs Jump Since Cutbacks in
TennCare,” Tennessean, June 18, 2006.
[10]
The longstanding test that the Medicare Trustees apply in determining the
solvency of the program is whether the Medicare Hospital Insurance Trust Fund
will have adequate assets to cover expected Medicare Hospital Insurance costs.
This is the same definition of solvency used for the Social Security trust
fund. In the case of Social Security, the bill does not alter the definition of
solvency.
[11]
For a full discussion of the issues raised by the bill’s definition of Medicare
“solvency,” see Robert Greenstein, James Horney, Richard Kogan, and Edwin Park,
“Senate Budget Process Legislation Embraces Misguided ‘45-Percent Trigger,’”
Center on Budget and Policy Priorities, June 26, 2006.
[12]
“The Long Term Budget Outlook,” Congressional Budget Office, December 2005, page
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http://www.cbo.gov/ftpdocs/69xx/doc6982/12-15-LongTermOutlook.pdf.
[13]
Statement of Donald B. Marron, Acting Director, Congressional Budget Office, on
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Committee on the Budget, United States Senate, Feb. 2, 2006, pages 1-2,
available at:
http://www.cbo.gov/ftpdocs/70xx/doc7034/02-02-OutlookTestimony.pdf.
[14]
Christine Borger, et al., “Health Spending Projections Through 2015: Changes on
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[15]
Marron, op. cit. |