November 4, 2005

Edwin Park

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Health Policy

Federal Budget Policy

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The Senate budget reconciliation bill includes a provision to eliminate the so-called Medicare stabilization fund for regional Preferred Provider Organizations (PPOs).  The Congressional Budget Office estimates that elimination of this fund will reduce Medicare spending by $5.4 billion over five years and $10.2 billion over ten years.

On November 1, the Administration issued a Statement of Administration Policy declaring that if the final reconciliation legislation presented to the President eliminates or reduces the stabilization fund, the President’s senior advisors will recommend that the President veto the bill.[1]  The Administration’s justification for this veto threat is a claim that the stabilization fund is necessary to ensure participation of regional PPOs in the Medicare program.

This claim was refuted earlier this year, however, by the Medicare Payment Advisory Commission (MedPAC), the official, independent advisory body to Congress on Medicare payment policy.  In its June 2005 report to Congress, MedPAC explicitly called for the stabilization fund to be eliminated.  Thus, Congress’ independent expert advisory body called on Congress to take the very step that has now prompted a veto threat.  MedPAC approved this recommendation on a nearly unanimous basis — a 15-1 vote.[2]

Furthermore, the inclusion in the Senate bill of the provision to eliminate the stabilization fund serves another goal as well — the provision helped the Senate achieve its reconciliation savings target for health care programs without harming the millions of low-income children, parents, seniors, and people with disabilities who rely on Medicaid for health care coverage.  The House reconciliation bill, by contrast, maintains the stabilization fund for regional PPOs — and hits low-income Medicaid beneficiaries hard.

It is unfortunate that an Administration that has never vetoed a bill has chosen to issue a veto threat to save a provision that would confer billions of dollars in excessive government payments on one group of firms (and that thus essentially constitutes a form of “corporate welfare”).  It will be even more unfortunate if the veto threat ultimately leads a House-Senate conference committee to drop this Senate provision and replace it with savings obtained by reducing low-income beneficiaries’ access to health care instead.

End Notes:

[1] Office of Management and Budget, “Statement of Administration Policy: S. 1932 Deficit Reduction Omnibus Reconciliation Act of 2005,” November 1, 2005.  The President’s senior advisors will also recommend the President veto the reconciliation legislation if it “takes away” beneficiaries’ prescription drug coverage.

[2] MedPAC Recommendation 3A included in Medicare Payment Advisory Commission, “Report to the Congress: Issues in a Modernized Medicare Program,” June 2005.  The recommendation to eliminate the stabilization fund was approved 15-1 with one member absent.