Bush Proposes Medicare Cuts in Latest Budget

Having failed to convince Congress to overhaul Social Security last year, President Bush in his budget for fiscal 2007 is taking on an even more politically difficult task — slowing the growth in Medicare.

The administration's budget actually proposes cuts to a wide variety of health programs, including the Centers for Disease Control and Prevention and aid to children's hospitals. It would freeze funding for many more, including the National Institutes of Health.

But the biggest money — and the biggest controversy — will surround efforts to reduce spending on Medicare, the federal health program for the elderly and disabled. The budget would reduce Medicare spending by just short of $36 billion over the next five years. But at the briefing to unveil his department's budget, Health and Human Services Secretary Mike Leavitt said the cuts won't even make that much of a dent in Medicare's long-term financing shortfall. "They will amount to reducing our growth rate by less than 1.5 percent. Under the current pattern, we would see spending at 8.1 percent over the next five years. Under this proposal, it would fall to 7.7 percent. Medicare will continue to grow, but at a slower rate," he said.

In fact, most of the cuts in the package were first recommended by the nonpartisan — and apolitical — Medicare Payment Advisory Commission, or MedPAC. But that won't keep the proposal from riling up the powerful health-care provider groups in Washington, D.C. Chip Kahn, president of the Federation of American Hospitals, says he's disappointed by the proposed growth reductions. "With all the pressures on hospitals, with the fact that most hospitals are losing money on their Medicare patients today, this is the wrong policy at the wrong time," he said.

And while the cuts wouldn't do much for Medicare's bigger problem, says Kahn, "it will have a direct impact on the capacity of hospitals to provide the kind of services that Medicare beneficiaries expect."

That's the kind of complaint that resonates with lawmakers from both parties, who are loath to anger health providers in an election year. "I think we're going to see some people who are very nervous about this, including even members of the Republican leadership," said Alec Vachon, a former Senate Republican health aide who's now a consultant. For example, he said Sen. Rick Santorum (R-PA), the no. 3 ranking Republican in the Senate, "is in a tough race this year and I don't think he'd necessarily want to tangle with his hospitals and nursing homes in his state."

But as politically problematic as the health provider cuts may be, the administration is seeking an even more far-reaching change to Medicare — capping the amount the government spends on the program.

Under current law, if the portion of Medicare spending that comes from the general treasury (as opposed to payroll taxes or beneficiary premiums) rises above 45 percent, the president is required to make savings recommendations to Congress, which is free to ignore them. HHS Secretary Leavitt says the administration wants to put some teeth in that requirement: "If it goes above 45 percent, that it will trigger a series of actions that would keep it at 45 percent," he said.

And if Congress does not act, an across-the-board cut of 0.4 percent would be imposed on all Medicare payments, instead.

Much about the proposal "will have to be fleshed out by Congress," said Leavitt. But even with few details, just the idea is already causing ripples among the same groups that successfully blocked Social Security changes last year. "It's kind of an arbitrary cap," said John Rother, policy director for the senior group AARP. "It's not linked to any proposal to save money by making health care more efficient, not linked to any proposal to tighten edibility in any way. it's just an across the board cap that leaves the details of how it's to be achieved up to Congress."

And Rother says the proposal is more than just a money saver; it's a whole new approach to a program that for more than 40 years has promised to pay for a set package of benefits. "This would be a very significant philosophical shift, in effect saying, we're only going to spend this much on health care, regardless of how much it costs and regardless of what's happening in the rest of the health-care system," Rother said. "Medicare would be limited to a predetermined dollar amount with unknown consequences."

And should Congress take the president up on his proposal, it will face unknown consequences as well.

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