Monthly Archives: February 2008

Policy Brief: SCHIP Proposals in President’s FY09 Budget

Summary:  In submitting his Fiscal Year 2009 Budget request to Congress, President Bush proposed a number of changes to the State Children’s Health Insurance Program (SCHIP).  As part of this package, the Administration requested a $19.7 billion increase in federal funding for SCHIP over the next five years.

Background:  The State Children’s Health Insurance Program, established under the Balanced Budget Act (BBA) of 1997, is a state-federal partnership originally designed to provide low-income children with health insurance—specifically, those children under age 19 from families with incomes under 200 percent of the federal poverty level (FPL), or approximately $40,000 for a family of four.  States may implement SCHIP by expanding Medicaid and/or creating a new state SCHIP program.  SCHIP received nearly $40 billion in funding over ten years as part of BBA, and legislation recently passed by Congress in December (P.L. 110-173) extended the program through March 2009 while providing additional SCHIP funds for states.

Budget Funding Proposal:  The budget proposes an additional $2.2 billion in SCHIP spending for Fiscal Year 2009, and $19.7 billion over the five year period.  The budget includes outreach grants of $50 million in 2009, and $100 million annually for the four succeeding years, for state and local governments as well as community-based organizations to engage in activities designed to increase enrollment of eligible children.

These funding levels significantly exceed the approximately $5 billion in increased funding proposed by the President in his Fiscal Year 2008 budget last year.  The proposal also exceeds the $1.8 billion in proposed Medicaid savings in Fiscal Year 2009 and $17.4 billion over the next five years achieved by realigning and simplifying the federal matching percentage for various administrative and family planning services, among other proposed changes.

Proposed SCHIP Enrollment Levels:  The Department of Health and Human Services’ (HHS) Fiscal Year 2009 Budget in Brief document notes that CMS exceeded its 2005 goal of enrolling five million children in the SCHIP program by more than a million children.  During FY2006, 4.0 million children on average were enrolled in SCHIP during any given month, and 6.6 million children were enrolled at any time during the year.

In arriving at a top-line budget number for its SCHIP proposal, the budget document also sets assumptions for future year enrollment levels.  The proposal notes the fact that the $19 billion increase in funding proposed by the Administration would fund an average of 5.6 million children in SCHIP per month, and nearly nine million children at some point over the course of a year—both of which constitute increases of nearly a third over 2006 levels.  Much of the additional enrollment and spending would stem from the outreach efforts as a result of the $450 million in grants proposed as part of the Cover the Kids initiative.

The significant increases in enrollment proposed that would result from the Administration’s higher budget request seem to be inconsistent with another document commissioned by HHS to study the number of uninsured children.  In that report, two researchers from the Urban Institute found that in 2003-2004, only 689,000 uninsured children in families with incomes under 200% FPL were eligible for, but not enrolled in, SCHIP coverage.  During the debate over SCHIP’s reauthorization last year, Administration officials utilized these data to reject calls from Congressional Democrats for $35-50 billion in increased SCHIP funding as unnecessary to fund health insurance for all targeted populations.

Focus on Originally Targeted Populations.  The budget notes a guidance letter issued by the Centers for Medicare and Medicaid Services (CMS) on August 17, 2007 designed to prevent children from dropping private insurance coverage in order to join the government-funded SCHIP—a phenomenon commonly referred to as “crowd-out.”  The letter provided several criteria for states seeking to cover children in families with incomes above 250% FPL, including a one-year waiting period of uninsurance for individuals seeking coverage and assurance that the state has enrolled 95% of children below 200% of FPL who are eligible for coverage through Medicaid or SCHIP.  The letter, which is consistent with the Administration’s stated policy of targeting federal assistance to the low-income children for whom SCHIP was originally created, advised that CMS could pursue corrective action against states that have not worked to implement the guidance within 12 months (i.e. by August 2008).  The budget proposes legislation to extend this standard to any state wishing to expand coverage beyond 200% of FPL—the level below which states were supposed to target their SCHIP coverage, according to the original BBA provisions.

In addition, the budget would tighten SCHIP eligibility by clarifying the definition of income.  This proposal would eliminate the general “income disregard” system that has caused concern for many conservatives by enabling some states to extend government-financed SCHIP coverage to children in families making above 250-300% FPL ($50,000-$60,000 for a family of four).  However, states may still create “income disregards” around specific items (e.g. food, housing, etc.).

Coverage for Adults.  While the Administration’s budget proposes to transition adults out of SCHIP, it also proposes to transition adults into Medicaid coverage.  Although the federal matching percentage is slightly lower for Medicaid than for SCHIP, some conservatives may remain concerned that the budget’s proposed transition out of a program intended for low-income children belies the fact that these adults will remain dependent on public health insurance coverage.  Moreover, this proposal echoes language in the Senate SCHIP “compromise,” which the Administration twice vetoed (H.R. 976, H.R. 3963) last year.

Conclusion:  Most conservatives support enrollment and funding of the SCHIP program for the populations for whom the SCHIP program was created.  That is why in December the House passed, by a 411—3 vote, legislation reauthorizing and extending the SCHIP program through March 2009.  That legislation included an additional $800 million in funding for states to ensure that all currently eligible children will continue to have access to state-based SCHIP coverage.

While the Administration’s Fiscal Year 2009 budget includes several reasonable proposals to ensure that SCHIP funds are targeted toward low-income children, the significant increases in proposed funding levels may give some conservatives pause.  A study funded by the Department of Health and Human Services itself confirms the impossibility of enrolling more than 1.5 million new children to enroll in SCHIP, given current eligibility guidelines.  Therefore, it is an open question whether the nearly fourfold proposed increase in SCHIP funding—coupled with $450 million in outreach grants to states, localities, and community organizations—will only serve to encourage states to expand government-funded health insurance under the aegis of covering uninsured children.

For further information on this issue see:

Rep. Jeb Hensarling Op-Ed: Medicare and Entitlements

Originally published in Washington Times, February 22, 2008

It’s become an annual ritual — almost as much a herald of springtime in Washington as the cherry blossoms along the Potomac: President Bush advances a plan for entitlement reform, and Democrats in Congress proclaim it “dead on arrival.” It happened with Social Security reform three years ago, it happened with the president’s proposed savings from Medicare last year, and now it’s about to happen again with the new and enhanced Medicare proposals that the White House has delivered to Capitol Hill. But things are a bit different this time — for better and for worse.

The worsening news comes from the Medicare trustees themselves, whose latest report details the precarious financial situation of the trust funds that finance Medicare expenditures. The trustees warn that Medicare faces collective unfunded obligations of more than $74 trillion — more than six times the current size of the American economy. And those obligations are not getting smaller; they keep increasing. The Government Accountability Office estimates that for each year that Medicare and Social Security entitlements go unreformed, their projected shortfall grows by an additional $2 trillion.

The implications of these warnings from the trustees could not be more stark to the 200 million Americans under age 54 — who, according to the latest trustees’ report, will not be able to retire with full Medicare benefits. The Medicare Part A trust fund is scheduled to be “exhausted” — in plain English, flat broke — in 2019. This means that tens of millions of Baby Boomers face an uncertain retirement rife with questions about the future of health care.

If there is a silver lining to be found amid the darkening fiscal clouds, it lies in statutory provisions that ensure that proposals to curb Medicare spending will live to see the light of a fair vote in Congress. Fortunately, my Republican Study Committee colleagues and I added a little-known provision into the Medicare Modernization Act of 2003 — the overarching law that added prescription drug benefits to Medicare — that requires the independent Medicare trustees to issue a funding warning if Medicare expenditures are projected to grow to levels that will take away from other important national priorities. The president has now responded to that warning by submitting proposals that will help save the Medicare system by slowing its growth and empowering concerned Americans to demand comprehensive entitlement reform.

The president’s budget constituted a good first step toward Medicare reform, proposing to slow the growth of Medicare by nearly $178 billion over the next five years. Contrary to the mythical rhetoric of congressional Democratic leaders, the president’s budget proposal would not “cut” Medicare. Instead, his proposal allows Medicare to grow by 5 percent, instead of the 7.2 percent currently projected. Since most providers would continue to receive increased reimbursements from the federal government, the level, number and intensity of services provided would still continue to grow. And therein lies one of the keys to true Medicare reform: ensuring that budgetary savings derive from wise choices by patients and doctors about the most cost-effective treatment options.

In addition to the White House budget proposals, there are additional, more comprehensive solutions that have the potential to yield greater savings and slow the growth of the health costs that threaten to cripple our future. Solutions that would restructure Medicare cost-sharing and increase means-testing for wealthy beneficiaries would ensure the program’s sustainability by making beneficiaries more cost-conscious. Solutions like medical liability reform that would reduce providers’ costs associated with legal claims, saving money for Medicare and the general public. Solutions that would transform Medicare into a health care system similar to that which members of Congress have so that all seniors receive better care at a lower cost.

The president’s proposals have advanced the discussion of Medicare reform, and the trigger mechanism which we instituted five years ago provides Congress with a golden opportunity to conduct a thorough, stem-to-stern review of the way seniors receive health care and ensure that we can maintain our promises to baby boomers and future retirees alike.

The current race for the White House is teaching us many things about the American people. They are clamoring for change and yearn for leaders who will not only speak the truth about the problems facing our nation but work to provide solutions to them. Congress has an opportunity to do just that without waiting for a new president.

We have 2 trillion — that’s 2,000,000,000,000 — reasons to act on comprehensive entitlement reform, and to act this year. The American people expect no less.

Rep. Jeb Hensarling of Texas is chairman of the Republican Study Committee.

Weekly Newsletter — February 22, 2008

Mental Health Parity Bill Headed for Floor

With the House scheduled to return from its President’s Day recess today, the period between now and the Easter recess may include action on a mental health bill (H.R. 1424) sponsored by Rep. Patrick Kennedy (D-RI).  Among other provisions, the bill would impose a federal mandate that group health insurance plans offered by employers provide insurance coverage for a broad array of mental and substance abuse disorders, impose a federal scope of benefits for mental health coverage, and permit states to enact laws with more stringent consumer protections, potentially creating a patchwork of regulations to which large employers will be forced to comply.

Some conservatives may have strong concerns about both the principle behind the legislation—a costly federal mandate that will raise the health insurance premiums and increase the number of uninsured Americans—as well as the way in which the expansive House language would mandate coverage for “mental disorders” such as caffeine addiction and jet leg.  The RSC will be monitoring this legislation as it makes its way to the House floor, and will be weighing in during the process to express conservatives’ concerns.

SCHIP Hearing Scheduled

Tomorrow the Health Subcommittee of the House Energy and Commerce Committee has scheduled a hearing around the State Children’s Health Insurance Program (SCHIP).  This hearing will center around the guidance letter the Centers for Medicare and Medicaid Services (CMS) issued in August 2007 requiring states to take steps that ensure that SCHIP funds are targeted toward low-income children before states spend money to expand coverage to wealthier populations.

Most conservatives support enrollment and funding of the SCHIP program for the populations for whom the SCHIP program was created.  That is why in December the House passed, by a 411—3 vote, legislation reauthorizing and extending the SCHIP program through March 2009.  That legislation included an additional $800 million in funding for states to ensure that all currently eligible children will continue to have access to state-based SCHIP coverage.  However, many conservatives also express strong reservations about further expansions of government-funded health insurance, particularly when those expansions would displace private insurance coverage held by wealthier families and children.

Interestingly enough, the Subcommittee hearing comes just over a week after full Committee Chairman John Dingell (D-MI) called the President’s Medicare trigger proposal “little more than a scare tactic.”  With the size of America’s unfunded obligations rising by $2 trillion every year that Congress takes no action to reform entitlement spending, some conservatives might argue that the better way to help America’s children is to reform Medicare and Medicaid so that future generations will not be saddled with trillions of dollars of debt, not work to expand public programs for wealthier children.

Chairman Hensarling Op-Ed on Medicare Trigger Legislation

Last Friday, RSC Chairman Jeb Hensarling placed an op-ed article in The Washington Times discussing President Bush’s submissions to Congress regarding the state of Medicare—both the package of reimbursement adjustments proposed in the Fiscal Year 2009 budget, and the additional reforms proposed as part of the White House’s response to the “trigger” issued as a result of the Medicare trustees’ funding warning.

Chairman Hensarling’s article reflects the views of many conservatives that the “trigger” represents a critical opportunity to enact fundamental reform of the Medicare program that should ensure the program’s long-term sustainability and reduce its cost growth.  In the coming months, RSC members will explore and advocate for market-based approaches intended to alleviate the fiscal crisis that will loom large in the absence of comprehensive entitlement reform.

Read the article here; to learn more about the trigger, read these policy briefs on this issue.

Article of Note: “Lone Star Showdown”

With the Presidential primary campaign moving to the key states of Texas and Ohio, the Hudson Institute’s Betsy McCaughey examines the way in which the Democratic candidates’ proposals might affect the Lone Star State.  Her op-ed piece in The Wall Street Journal posed questions to Sens. Hillary Rodham Clinton (D-NY) and Barack Obama (D-IL) that illustrated the logistical and philosophical objections many conservatives find with their health platforms:

  • Would illegal immigrants receive federal subsidies for health insurance?
  • How would a mandate for all individuals to have health insurance—or, in the case of Sen. Obama’s plan, requiring all parents to buy coverage for their children—be enforced?
  • How are guaranteed issue and community rating policies—which prohibit insurance carriers from varying premiums based on age or health status—fair to the younger workers who will pay more to subsidize older and less healthy—but presumably richer—individuals?
  • How are dozens of costly state benefit mandates consistent with “affordable” health insurance coverage?
  • Will promises that individuals will be able to keep coverage they like extend to persons with high-deductible health plans and/or Health Savings Accounts, or will they be forced to convert to more expensive coverage they may not want?
  • Is attempting to regulate the profits of insurance companies a wise role for government to be playing in health care—or in any industry, for that matter?

McCaughey’s article uses examples derived from Texas, but the concerns she raises could be cited by conservatives in all states as they weigh the import of the proposals put forward by the Presidential contenders.

Read the article here:

The Wall Street Journal: “Health Questions for the Candidates” (subscription required):

http://online.wsj.com/article_print/SB120346913783878607.html

Policy Brief: President’s Medicare “Trigger” Proposals

Background:  Title VIII of the Medicare Modernization Act (MMA) includes provisions requiring the President to submit legislation within 15 calendar days of his annual budget submission in the event of a funding warning being issued by the Medicare trustees.  Because the trustees last April submitted their second consecutive warning that Medicare is projected to claim a growing share of general revenues within the next seven years, the President put forward his proposals to address the pending funding shortfall.  Under provisions established in statute, the legislative proposals will be introduced by the House Majority and Minority Leaders on the President’s behalf within three legislative days.

During the conference committee’s consideration of MMA, the funding warning mechanism was included at the behest of the Republican Study Committee as one device to help alleviate conservatives’ concerns about Medicare’s long-term solvency and ensure that Medicare’s claims on general budgetary revenues would not overwhelm either other federal budgetary priorities or the national debt.  By providing “fast-track” procedures for considering bills to improve the program’s solvency, the Medicare trigger also provides conservatives with another opportunity to examine more fundamental reforms to the way seniors’ health care is financed and delivered.

Summary of Proposal:  The Administration’s legislative proposal to address the “trigger” contains two titles.  The first title puts forward suggestions to make the Medicare purchasing system more cost-effective from a budgetary standpoint.  The second incorporates liability reforms that will reduce Medicare expenditures, as well as additional means-testing proposals that will increase Medicare revenues by raising premiums on wealthy seniors.  A preliminary summary of the legislation follows:

Value-based Purchasing:  This concept, also known as “pay-for-performance,” would vastly expand the federal government’s role in health care by adjusting physician and provider reimbursement levels to reflect successful patient outcomes on a risk-adjusted basis.  The proposed legislative package would provide for greater transparency of price and quality measures, and would further authorize the Secretary to take steps to adjust reimbursement levels in order to purchase care from those providers which provide the greatest value to beneficiaries and the Medicare program.  The legislation also requires the Secretary to make high-deductible health plans available in the Medicare program, and provide a transition for individuals not yet enrolled in Medicare who own Health Savings Accounts (HSAs).

While policy-makers of all political stripes believe in providing consumers with additional price and quality transparency information, the further step of tying Medicare reimbursement levels crafted by federal bureaucrats to either process or outcome measures could prove much more problematic.  Although its advocates believe pay-for-performance can achieve significant budgetary savings, existing Congressional Budget Office (CBO) models have failed to realize any measurable impact on future Medicare expenditures.  Additionally, some conservatives may be concerned that this methodology would deepen the government’s role in health care by altering the fundamental doctor-patient relationship, leading to a more intrusive federal bureaucracy dictating the terms of patient care.

Medical Liability Reform: This proposal would help bring down health spending both within and outside Medicare by helping to eliminate frivolous lawsuits and providing reasonable levels of compensation to victims of medical malpractice.  Provisions of the bill include a three-year statute of limitations, a cap on non-economic damages of $250,000, and reasonable limits on attorney contingency fees charged to successful claimants.

In 2003, the Congressional Budget Office scored a similar liability reform bill passed by the House (H.R. 5) as lowering Medicare spending by $11.2 billion over a ten-year period.  While CBO staff have indicated that state liability reforms in the intervening time have reduced the savings level below the baseline for federal liability reform, savings from passage of the President’s proposal would likely still generate several billion dollars in savings to Medicare.

Means Testing:  The legislation proposes to establish an income-related Part D premium consistent with the Part B “means testing” included in Title VIII of the Medicare Modernization Act.  The proposal—which was included in the Fiscal Year 2009 budget—would achieve savings of $3.2 billion over five years.  The RSC has previously included similar proposals in its budget documents as one way to constrain costs and ensure consistency between a Part B benefit that is currently means-tested and a Part D benefit that is not.

Other Reform Options:  The legislative package advanced by the Administration comes on the heels of a Fiscal Year 2009 budget that proposed $178 billion in Medicare savings over the next five years, largely through adjustments to provider reimbursements.  In addition to the various proposals put forward by the Administration and described above, the opportunity afforded by the trigger could be used to advance other comprehensive proposals to reform Medicare, which could include:

Premium Support:  This model would convert Medicare into a system similar to the Federal Employees Benefit Health Plan (FEHBP), in which beneficiaries would receive a defined contribution from Medicare to purchase a health plan of their choosing.  Previously incorporated into alternative RSC budget proposals, a premium support plan would provide a level playing field between traditional Medicare and private insurance plans, providing comprehensive reform, while confining the growth of Medicare spending to the annual statutory raise in the defined contribution limit, thus ensuring long-term fiscal stability.

Restructure Cost-Sharing Requirements:  This concept would restructure the existing system of deductibles, co-payments, and shared costs, which currently can vary based on the type of service provided.  Additionally, Medicare currently lacks a catastrophic cap on beneficiary cost-sharing, leading some seniors to purchase Medigap policies that insulate beneficiaries from deductibles and co-payments and therefore provide little incentive to contain health spending.  Reforms in this area would rationalize the current system, generating budgetary savings and reducing the growth of health spending.

Increase Medicare Part B Premium:  The RSC has previously proposed increasing the Part B premium from 25% to 50% of total Medicare Part B costs, consistent with the original goal of the program.  This concept would not impact low-income seniors, as Medicaid pays Medicare premiums for individuals with incomes under 120% of the federal poverty level.

Bipartisan Commission:  This proposal would provide an expedited mechanism requiring Congress to hold an up-or-down vote on the recommendations of a bipartisan commission examining ways to reform Medicare and other federal entitlements.

Sequestration Mechanism: This proposal would cap the growth of overall Medicare spending levels, and provide adjustments in benefit structures in the event that spending exceeded statutory levels.  The budget submission to Congress did include the proposal that physician payments be reduced 0.4% for every year in which general tax revenues cover more than 45% of Medicare costs—the level at which the Medicare Modernization Act required that a funding warning be issued, and action taken by Congress.  The Administration proposal is designed to provide Congress with an impetus to embrace comprehensive entitlement reform by requiring across-the-board cuts absent pre-emptive legislative action.

Conclusion: The Medicare funding warning issued by the trustees last year provides an opportunity to re-assess the program’s structure and finance.  While competition among drug companies has ensured that expenditures for the MMA’s prescription drug benefit remain below the bill’s original estimates, introduction of pharmaceutical coverage has dramatically increased the overall growth of health care costs within the Medicare program, leading to the trustees’ funding warning.  The confluence of these two events should prompt Congress to consider the ways in which competition could be used to reduce the growth of overall Medicare costs, similar to the way in which the market for pharmaceutical coverage reduced the estimated cost of the Part D prescription drug benefit.

The Administration has put forward two separate proposals—the first in its budget submission to Congress last week, the second as part of its formal “trigger” submission this week—to address Medicare’s long-term solvency issues and begin a process of comprehensive reform.  Many conservatives are likely to view the President’s proposals as a positive first step in the discussions about ways to curb soaring entitlements, while considering additional proposals described above to advance the discussion further and to ensure Medicare’s long-term fiscal stability.

For further information on this issue see:

Weekly Newsletter — February 15, 2008

Medicare Trigger Legislation Submitted

This week the President formally submitted to Congress legislation to reform Medicare, as required by Title VIII of the Medicare Modernization Act (MMA).  The so-called trigger provisions of Title VIII—inserted into MMA five years ago at the behest of RSC members—requires the President to submit legislative remedies when the Medicare trustees certify that Medicare expenditures are consuming a growing portion of general budget revenues, and provides a mechanism for both Houses of Congress to demand an up-or-down vote on a solution to Medicare’s funding woes.

The President’s proposal to Congress includes three planks: value-based purchasing (also known as “pay-for-performance”), medical liability reform, and a means-tested premium for Medicare Part D, similar to the means-tested Part B premium incorporated into MMA.  These proposals follow on the heels of the President’s Fiscal Year 2009 budget submission to Congress, which proposed $178 billion in savings over the next five years, largely through adjustments to provider reimbursement rates (see below).

Although some conservatives may have concerns over the significant intrusion into doctor-patient relationships that pay-for-performance could create, it is worth noting that the President has put forward two distinct proposals for Medicare reform in as many weeks.  While some conservatives will look to more comprehensive measures—re-structuring of Medicare cost-sharing, and Medicare’s eventual conversion into a health care system similar to that provided to Members of Congress—many view the measures advanced by the Administration, and supported by the Republican leadership in Congress, as a positive first step in the cause of comprehensive entitlement reform.

When it comes to entitlement reform, the cost of inaction is great: the Government Accountability Office estimates that each year Congress does not act to reform Social Security and Medicare, their unfunded liability to the federal government grows by $2 trillion.  Congress needs to act—and act now—on comprehensive reforms to Medicare.

To learn more about the trigger, read these policy briefs on this issue.

Analysis of Fiscal Year 2009 Budget Proposals

Last week the Administration put forward its Fiscal Year 2009 budget, which contained several key health-related proposals.  The President’s budget suggested generating $178 billion in savings from Medicare over the next five years, slowing its projected rate of growth from 7.2% to 5.0% and saving beneficiaries $6.2 billion in Part B premiums over five years.  The budget also proposed $14 billion in savings from Medicaid, but more than offset these savings by proposing a $19 billion expansion of the State Children’s Health Insurance Program (SCHIP).

More information can be found in a policy brief here.

Articles of Note

Two articles in the past week dissected the ongoing debate between Democrat Presidential contenders over a mandate for individual coverage, while providing all the proof needed that such a mandate would likely prove ineffective.  While The Politico noted Sen. Hillary Clinton’s “winner-take-all” approach to universal coverage and an individual mandate, The Wall Street Journal provided insights as to why most conservatives view mandates as both unnecessary and unworkable:

  • Census Department data indicate that more than one-third of the uninsured—over 17.7 million Americans—come from families with annual incomes over $50,000, raising questions as to how many of the uninsured cannot afford to buy insurance and how many do not wish to purchase insurance, because costly state regulations have inflated premiums.
  • Massachusetts has already exempted 20% of its uninsured population from its “universal” individual mandate—a number which is likely to climb in future years, as the cost of over-regulated health insurance products in the state skyrockets.
  • Hawaii has incorporated a “pay-or-play” mandate—requiring most employers to subsidize their workers’ health insurance—for more than three decades, yet Hawaii still has more than 100,000 uninsured individuals—even though employers cannot easily relocate their businesses to other states in order to avoid paying the higher health costs associated with the mandate.

As the Journal points out, enforcing a mandate will require both harsh government penalties—Sen. Clinton has suggested garnishing workers’ wages—and a new federal bureaucracy to enforce them.

Read the articles here:

The Politico: “Mandate vs. Incentive:”

http://dyn.politico.com/printstory.cfm?uuid=0AEDD980-3048-5C12-009466C7673DC229

The Wall Street Journal: “The Wages of HillaryCare” (subscription required):

http://online.wsj.com/article_print/SB120243891249052861.html

Policy Brief: Health Care Proposals in President’s FY09 Budget

Summary:  In submitting his Fiscal Year 2009 Budget request to Congress, President Bush proposed a number of health-related changes that would achieve budgetary savings to both mandatory and discretionary spending.  As part of this package, the Administration has proposed a package that would reduce the growth of Medicare spending from 7.2% to 5.0% to meet requirements under the Medicare Modernization Act.

Mandatory Spending—Medicaid/SCHIP:

The budget proposal includes $1.8 billion in Medicaid savings in Fiscal Year 2009 and $17.4 billion over the next five years.  Budgetary savings would be achieved by realigning reimbursement rates for family planning services at the statutory Federal Medical Assistance Percentage (FMAP) rate ($3.3 billion in savings over five years), and by aligning reimbursement rates for all administrative services and case management at 50% (total $6.6 billion in savings over the five-year window).  Additional savings over the next five years would be achieved through adjustments to pharmacy reimbursements ($1.1 billion), asset verification ($1.2 billion), and cost allocation ($1.77 billion).

The budget proposes an additional $2.2 billion in SCHIP spending for Fiscal Year 2009, and $19.7 billion over the five year period.  The budget includes outreach grants of $50 million in 2009, and $100 million annually in subsequent years, for state and local governments as well as community-based organizations to engage in activities designed to increase enrollment of eligible children.  Lastly, the budget proposes to simplify SCHIP eligibility by clarifying the definition of income, eliminating the “income disregard” system that has been a source of concern among many conservatives.

Mandatory Spending—Medicare:

The budget includes several proposals to reduce the overall growth in Medicare spending.  Overall, Medicare funding would fall $178 billion below the baseline over the next five years.  These proposals would not constitute overall “cuts” to the Medicare program, but would instead reduce its growth from 7.2% to 5.0%.  Highlights of the budget submission include the following:

Provider Adjustments: The Administration proposal would freeze payment rates for hospitals, skilled nursing facilities, long-term care and outpatient hospitals, ambulatory surgical centers, inpatient rehabilitation facilities, and home health providers through Fiscal Year 2011, and provide a –0.65% annual market basket update thereafter, saving $112.93 billion over five years.  The savings derived from flat-level payments would not mean that providers would not continue to receive increased reimbursements from the federal government, as the level, number, and intensity of services provided would still continue to grow.

Disproportionate Share Hospital (DSH) Payments: Medicare DSH payments, which compensate hospitals that serve large numbers of low-income individuals, would be reduced by 30% over two years, saving $20.7 billion over five years.  This modest reduction in payments to hospitals would recognize the significantly enhanced benefits provided to seniors, particularly those with low incomes, as part of the Medicare Modernization Act.

Medical Education: The budget would eliminate duplicate Indirect Medical Education (IME) payments made to hospitals on behalf of Medicare Advantage beneficiaries, and would reduce the IME add-on by 60% over the next three years, saving a total of $21.75 billion over five years.

Means Testing:  The budget proposes to end annual indexing of income-related Part B premiums and establish an income-related Part D premium consistent with the Part B “means testing” included in Title VIII of the Medicare Modernization Act.  The proposals would achieve total savings of $5.75 billion over five years.  The RSC has previously included similar proposals in its budget documents as one way to constrain costs and ensure consistency between a Part B benefit that is currently means-tested and a Part D benefit that is not.

Other Savings:  Additional savings over the five year budget window would come from a reduction in the rental period for oxygen equipment ($3 billion), extending Medicare Secondary Payor for the End-Stage Renal Disease (ESRD) program from 30 to 60 months ($1.1 billion), eliminating bad debt payments over four years ($8.5 billion), and other regulatory and administrative actions ($4.7 billion).

Medicare Funding Trigger

Concurrent with the budget submission, the Medicare Modernization Act (MMA) requires the President to submit to Congress within 15 days a proposal to remedy the Medicare “excess general revenue Medicare funding” warning announced by the Medicare trustees last spring.  In addition to the savings package described above, the opportunity afforded by the trigger could be used to advance more comprehensive proposals, which could include:

Premium Support: This model would convert Medicare into a system similar to the Federal Employees Benefit Health Plan (FEHBP), in which beneficiaries would receive a defined contribution from Medicare to purchase a health plan of their choosing.  Previously incorporated into alternative RSC budget proposals, a premium support plan would provide a level playing field between traditional Medicare and private insurance plans, providing comprehensive reform, while confining the growth of Medicare spending to the annual statutory raise in the defined contribution limit, thus ensuring long-term fiscal stability.

Restructure Cost-Sharing Requirements:  This concept would restructure the existing system of deductibles, co-payments, and shared costs, which currently can vary based on the type of service provided.  Additionally, Medicare currently lacks a catastrophic cap on beneficiary cost-sharing, leading some seniors to purchase Medigap policies that insulate beneficiaries from deductibles and co-payments and therefore provide little incentive to contain health spending.  Reforms in this area would rationalize the current system, generating budgetary savings and reducing the growth of health spending.

Increase Medicare Part B Premium:  The RSC has previously proposed increasing the Part B premium from 25% to 50% of total Medicare Part B costs, consistent with the original goal of the program.  This concept would not impact low-income seniors, as Medicaid pays Medicare premiums for individuals with incomes under 120% of the federal poverty level.

Medical Liability Reform: This proposal would help bring down health spending both within and outside Medicare by helping to eliminate frivolous lawsuits and providing reasonable levels of compensation to victims of medical malpractice.  In 2003, the Congressional Budget Office scored a liability reform bill (H.R. 5) as lowering Medicare spending by $11.2 billion over a ten-year period.

Bipartisan Commission:  This proposal would provide an expedited mechanism requiring Congress to hold an up-or-down vote on the recommendations of a bipartisan commission examining ways to reform Medicare and other federal entitlements.

Value-based Purchasing:  This concept, also known as “pay-for-performance,” would seek to adjust physician and provider reimbursement levels to reflect successful patient outcomes on a risk-adjusted basis.  While advocates believe pay-for-performance can yet achieve the significant budgetary savings not present in existing Congressional Budget Office models, some conservatives may be concerned that this methodology would deepen the government’s role in health care by altering the fundamental doctor-patient relationship.

Sequestration Mechanism: This proposal would cap the growth of overall Medicare spending levels, and provide adjustments in benefit structures in the event that spending exceeded statutory levels.  The budget submission to Congress did include the proposal that physician payments be reduced 0.4% for every year in which general tax revenues cover more than 45% of Medicare costs—the level at which the Medicare Modernization Act required that a funding warning be issued, and action taken by Congress.  The Administration proposal is designed to provide Congress with an impetus to embrace comprehensive entitlement reform by requiring across-the-board cuts absent pre-emptive legislative action.

Discretionary Proposals:  Overall, the President’s proposed discretionary budget for the Department of Health and Human Services (HHS) is $68.5 billion, $1.7 billion less than last year.  Preliminary highlights of funding levels on health programs include the following:

Centers for Disease Control (CDC): The proposal reduces overall spending by $412 million from current year levels.  Significant reductions within the CDC account include a proposed $111 million reduction for the Occupational Safety and Health Administration (OSHA), and an $83 million reduction in the World Trade Center screening and treatment program.

Earmarks: The budget proposes $451 million in savings by eliminating earmarked projects from the HHS budget.

Food and Drug Administration (FDA): The budget provides a $130 million increase for FDA over Fiscal Year 2008 levels.  More than half ($68 million) of the proposed increase comes from additional resources for drug and biologic safety programs, with an additional $33 million increase in the food safety budget.

Health Resources and Services Administration (HRSA): A total of nearly $1 billion in reductions in the HRSA account comes from several proposed sources—grants to train nurses and health professionals (reduced by $240 million); training doctors at children’s hospitals (eliminated, saving $302 million); rural health programs (reduced by $150 million); and public health buildings and projects (eliminated, saving $304 million).  Reductions in the rural health and health training accounts have previously been proposed in previous RSC budget documents.  Since that time, reconciliation legislation passed last September (P.L. 110-84) provided student loan forgiveness to public health workers, raising additional questions about the duplicative nature of the HRSA-funded grant programs.

National Institutes of Health (NIH): The National Institutes of Health would receive flat-level funding from Fiscal Year 2008, $29.5 billion in total, after years of substantial increases.  Funding for most institutes within NIH would likewise remain at constant levels for the upcoming Fiscal Year.

Conclusion: The Administration’s Fiscal Year 2009 budget includes several reasonable proposals to slow the growth of health spending and thereby help return federal entitlements to a more sustainable trajectory.  Such measures are needed urgently, as Medicare faces $34.1 trillion in unfunded liabilities over the next 75 years, according to the Government Accountability Office.  The need for immediate action is great: the first Baby Boomer becomes eligible for Medicare in 2011, and every year that Congress does not address unfunded entitlement obligations, their size grows an additional $2 trillion, according to Comptroller General David Walker.  Some conservatives may believe that these measures proposed by the Administration to constrain reimbursements to providers, while helpful, can constitute the starting point for a comprehensive discussion about entitlement reform.

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