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Reductions Could Hit Medicare & Medicaid, Staffers Warn

Published on Tue Jan 18, 2005

Times are tight for the federal government, and that will affect providers of all stripes.

If Congress gets serious about implementing President Bush's promise to cut the deficit in half, Medicare and Medicaid are in line for some serious cuts.

That was the message delivered by congressional staffers at a recent forum sponsored by the Alliance for Health Reform and the Kaiser Family Foundation. If the two giant health programs were asked to contribute in proportion to their share of federal spending, Medicare would face $55 billion in decreased funding over five years, while Medicaid would be on the hook for $27 billion, said Mark Hayes, health policy director for the Senate Finance Committee Republicans.

Over ten years, the cuts in the two programs would amount to roughly $239 billion, Hayes estimated. But he cautioned that the problem is actually more difficult than that: These numbers don't take into account the cost of heading off the Medicare physician pay cuts slated to begin next year, after the expiration of the two-year physician-compensation boost contained in the Medicare Modernization Act. Fixing the pay formula for docs, which is universally considered a political necessity, could cost $25 million over five years, bringing the total Medicare and Medicaid cuts needed to halve the deficit to $107 million, Hayes said.

Who'll get hit? Figuring out just where to get that kind of money would be no easy task. In the last Congress, the Bush administration proposed block-granting the Medicaid program, an option that the Congressional Budget Office says would save $64 billion over five years, according to Hayes. But the nation's governors are vigorously opposing any moves to decrease federal funding for the Medicaid programs that are already straining state budgets. And Alice Weiss, the health care counsel for the Finance Committee minority, said that 48 Senate Democrats had sent a letter to the Bush administration "stating their opposition to any sort of block grant proposal."

"To the extent that the administration or the leadership wants to go down this road, I think it's going to be a pretty messy and difficult fight," Weiss warned. She added that the Finance Committee "conveniently enough has some of the other top priorities for the President Social Security reform, tax reform, looking at Medicare implementation so it's going to be a busy time" for the panel.

There would be difficulties finding cuts of the magnitude needed on the Medicare side as well. "Typically, when Congress has been called upon to reduce entitlement spending, one of the first places we've looked has been hospitals," said Chuck Clapton, chief health policy counsel for the House Energy and Commerce Committee Republicans. But according to the Medicare Payment Advisory Commission, Clapton noted, hospital Medicare margins, which were at roughly 4 percent a couple of years ago, have now turned negative. "In this context, I think it will be extremely difficult from both a policy and a political perspective to advocate reductions in hospital payments," he said.

The staffers did offer some suggestions when asked where they would recommend cutting if necessary. Cybele Bjorklund, the Democratic staff director for the House Ways and Means Health Subcommittee, said Congress could save $40 billion by reducing payments to Medicare managed care plans that unfairly exceed fee-for-service payments, although she acknowledged that cutting funds for the program's private plans would be politically difficult, to say the least. Clapton noted Medicare may be paying too much for clinical lab services, and that overuse of imaging services may be artificially inflating physician payments.

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