Medicare Faces Cuts in Bush Budget

$36 Billion Cut Could Face Tough Sell in Congress

From the WebMD Archives

Feb. 6, 2006 -- Medicare could face another $36 billion in cuts over five years under a budget proposal unveiled by President Bush on Monday.

The cuts would come mostly in the form of reduced payments to hospitals, nursing homes, and other health care providers. But they would also be a part of a savings package that could increase Medicare premiums paid by some seniors.

The plan also seeks cuts within the CDC as well as to 13 of 14 research agencies at the National Institutes of Health.

Administration officials acknowledged that the Medicare cuts, along with cuts to a variety of other popular domestic health programs, would be difficult. But they said they maintained that the effort was necessary to control the long-term cost of the growing Medicare program.

"We had to make hard choices, hard choices about very well-intentioned programs," Health and Human Services Secretary Michael O. Leavitt told reporters.

The budget is only the first word on federal spending for next year. Congress will have to approve all final spending levels for government programs and departments.

Medicare Cuts

Monday's budget calls for the government to cut projected Medicare bills by $36 billion over the next five years and $105 billion over the next decade. Hospitals and nursing homes would be hardest hit by the proposal, together shouldering nearly $12 billion in cuts over five years.

Leavitt said the cuts would serve to slow Medicare's long-term growth from a rate of 8.1% per year to 7.7% per year. He said that was a key to sustaining the program as millions of baby boomers reach retirement.

"I want to characterize this budget as a responsible budget," he said.

The plan came just days after Congress passed approximately $11 billion in cuts to Medicare and Medicaid as part of a budget reconciliation bill.

Monday's plan met with unenthusiastic reviews from Democrats, while some Republicans doubted the likelihood of passing more cuts to health programs in an election year.

Sen. Kent Conrad (D-N.D.), the senior Democrat on the Senate Budget Committee, criticized the president's budget for ignoring large Medicare subsidies that go to private insurance companies and pharmaceutical manufacturers.


"There's billions of dollars of potential savings there," he said. "There's no question there's got to be savings but the question is where they should come from."

Medicare is financed by a combination of taxpayer money and money paid by beneficiaries in the form of deductibles, premiums, and a variety of other cost-sharing arrangements.

The White House plan proposes to reduce all Medicare provider payments by 0.4% if the government's share reaches 45% of Medicare's total cost. Current government projections put the date of the threshold at 2017.

The administration also wants to accelerate outpatient premium increases paid by higher-income Medicare beneficiaries making more than $80,000 per person annually.

Medicare director Mark B. McClellan said the cuts were "incremental" and would help protect Medicare's long-term solvency. "What we'd like to do is take those steps now," he said.

Capitol Hill Reaction

Both Republicans and Democrats predicted that President Bush would have a tough time convincing Congress to support more Medicare and Medicaid cuts in an election year.

Sen. Charles E. Grassley (R-Iowa), chair of the Finance Committee, pointed out that Congress just got through a big political fight over Medicare and Medicaid cuts passed last week.

"Any more reductions of a significant scope could be difficult this year," he said.

"I don't think it's going to happen in the coming year," said Rep. John Spratt (D-S.C.), the senior Democrat on the House Budget Committee.

Some lobbying groups sharply criticized the plans.

Kirsten Sloan, chief health care lobbyist for AARP, says the budget would achieve Medicare savings by moving costs from the federal government to individual beneficiaries. "It isn't a way to control health care costs, it's a way to shift costs onto someone else," she tells WebMD.

Sloan says the moves were akin to a cap on federal support for the program. She says AARP would now lean on lawmakers to oppose the 45% spending threshold as well as the premium boost.

Other Cuts

The White House budget also made requests for several other popular health programs, including:

  • A $179 million cut to in the budget for the CDC. Most of the cuts would curb new building construction at the agency, officials say.
  • A flat funding request for the National Institutes of Health. The Bush administration proposes to again spend $28.6 billion on research at the agency, including a $40 million spending cut at the National Cancer Institute.
  • $2.3 billion to fund the federal preparedness against pandemic influenza, including bird flu.
  • A $188 million program to increase HIV/AIDS testing among minorities and boost funding for anti-AIDS medications.

WebMD Health News Reviewed by Louise Chang, MD on February 06, 2006


SOURCES: Budget of the United States of America, FY, 2007. White House Office of Management and Budget, Feb. 6, 2006. Michael O. Leavitt, Secretary, Health and Human Services. Mark B. McClellan, administrator, Centers for Medicare and Medicaid Services. Sen. Kent Conrad, D-N.D. Rep. John Spratt, D-S.C. Sen. Charles E. Grassley, R-Iowa. Kirstin Sloan, national coordinator for health issues, AARP.
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