The Wall Street Journal, December 3, 2004
U.S. Health Plans Catch Fiscal Hawks' Eye
Amid Deficit and Social-Security Plans, Medicare and Medicaid Present Juicy Targets
by Sarah Lueck, Staff Reporter of The Wall Street Journal
WASHINGTON -- A year ago, Congress and the Bush administration were busy adding benefits to the Medicare program. Now, hundreds of billions of dollars of debt later, things have changed: Medicare and its sister health program, Medicaid, could be headed into the crosshairs of budget cutters.
Medicare is the federal health-insurance program for the elderly and disabled; Medicaid, which is jointly funded by states and the federal government, is a health-insurance program for the poor and disabled.
The two programs juicy targets for fiscal conservatives: At a combined cost of $473 billion a year to the federal government, they account for almost one-quarter of U.S. government spending, and their share is growing.
Meanwhile, the federal budget deficit is almost $413 billion and the president is weighing a potentially costly revamping of Social Security. To do all that, "I don't know how you can avoid cutting Medicare and Medicaid," says Cynthia Berry, a health-care lobbyist at Powell Goldstein LLP.
At $300 billion a year, Medicare makes up about 13% of federal spending, and its share will grow as the drug benefit, the biggest expansion in the program's history, takes effect in 2006. Loath to anger seniors by curbing benefits, the White House and Congress are scrutinizing payments to health-care providers -- especially those slated to rise sharply under last year's Medicare legislation. Tom Scully, the former head of the agency that runs Medicare and Medicaid and now a lobbyist, predicts "a modest squeeze" on payments. Even that, however, could add up to billions of dollars.
Hospitals are a prime target. Under last year's bill, they are slated to get $25 billion in payment increases over the next 10 years. If Congress trims the increases, it will be following a seesaw pattern started years ago, in which it approves big rate increases one year, only to backtrack later when budget pressures intensify. In 1997, Congress approved sharp cutbacks in provider payments, as part of the Balanced Budget Act, and then restored some of the money in following years under pressure from providers.
Congress "went too far" with earlier cuts, says Richard Pollack, executive vice president of the American Hospital Association. "It may not be a good idea to go back down that road." Even with last year's increases, Medicare payment rates remain below hospitals' costs, he says.
Other providers are less likely to face reductions. Health insurers, which are at the heart of Republican efforts to increase private-market forces in Medicare, probably will escape unscathed. Last year, Congress approved a huge payment to encourage them to offer generous benefits to draw people into Medicare Advantage -- a new arm of the program in which seniors get their benefits from private insurers rather than from the government-run program. The payment increases could range from $14 billion to $46 billion, depending on enrollment figures. "The administration is going to do everything it can to protect Medicare's experiment in private markets," says Robert Laszewski, a health-care consultant whose clients include insurers. "They're not going to scuttle that."
However, some of the money for insurers could be vulnerable. Congress created a special $10 billion fund, scheduled for disbursement in 2007, to spur the growth of regional Medicare plans. So far, insurers haven't shown much interest in offering regional coverage, preferring to stick with the lucrative and less-risky county-based markets in the Medicare Advantage program. If plans don't come forward by the middle of next year with regional service, the fund will "definitely be on the chopping block," Mr. Laszewski says.
Physicians, for their part, may escape cuts and might even get increases. Under existing law, physicians would undergo eight years of payment cuts starting in 2006. Congress, however, may heed doctors' arguments that the rate formula is flawed and needs to be fixed.
Even as congressional deficit hawks begin considering Medicare reductions, some analysts are skeptical that any changes will be big enough to shrink the deficit substantially, especially given the legions of health-care lobbyists determined to protect their interests.
"Show me the money," says Alec Vachon, a Republican consultant. "Where is there any kind of substantial Medicare savings that can make a serious impact on the deficit? Ten billion dollars, what does that buy you? That's lunch at La Colline," a restaurant on Capitol Hill.
Republicans may look for more savings in Medicaid. In recent years, President Bush and congressional Republicans have been pushing for an overhaul of the rapidly growing program. The administration, aiming to make Medicaid spending more predictable, may propose capping federal contributions -- something it sought unsuccessfully before.
But there are big obstacles to such a major change anytime soon. Congress and the White House may be preoccupied next year with Mr. Bush's efforts to overhaul Social Security. In addition, few of the nation's governors supported the administration's proposal the last time around. The proposal would have given states more control over the designs of their programs, including latitude to cut and expand benefits. But because it limited federal outlays, many states saw it as a shift of costs that would stick them with tough choices about what to cut.
A renewed effort to cap federal Medicaid spending also would provoke criticism from Democrats and advocates for the poor. They see such a plan as an attempt to sharply cut benefits and destroy the open-ended nature of the program.
Even if there is an impasse over major Medicaid changes, budget cutters might rack up savings by cracking down on practices that the administration says states are using to improperly wring funds from the federal government. Last year, the administration proposed saving nearly $10 billion over five years by getting tougher on states.
- - - - - - - - - - John Lacny http://www.johnlacny.com
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