Budget Proposes $560 Billion Cut


The Bush administration would cut roughly $560 billion from Medicare over the next decade but would leave intact program subsidies to insurers worth an estimated $150 billion over the same period.

The cuts would slow the program’s projected annual growth rate from 7% to 5% and are needed to slow “the unsustainable growth in entitlement spending,” President Bush said in a letter to Congress submitting his last budget plan.

“If we do not address this challenge, we will leave our children three bad options: huge tax increases, huge deficits, or huge cuts in benefits,” Mr. Bush said.

Several congressional leaders are also calling for a bipartisan discussion of federal entitlements, but most observers say differences between Mr. Bush and the Democratically controlled Congress are too great for any agreement to be reached.

The Bush administration estimates that the cuts would save the program, in net present value terms, roughly $10 trillion over the next 75 years. The savings would reduce nearly one-third of the program’s unfunded obligations, the White House said.

The budget, however, contains few details about some of the proposed cuts. For example, the budget says with little elaboration that it “proposes to encourage greater individual responsibility for health care choices and costs.”

The budget does outline a plan to cut Medicare payments to doctors and hospitals when certain funding levels are surpassed. If enacted, the proposal would cut such payments by 0.4% each year the program relied upon general revenues for more than 45% of its funding. In 2006, about 41% of the program’s costs were funded from general revenue.

It is unclear, however, whether payments to insurers would be subject to the provider payment cuts proposed by the White House.

The White House has fought congressional efforts to cut subsidized payments to insurers in the past. And in the budget Monday it argues that the payments allow insurers to “offer beneficiaries greater choices and higher-quality health care.”

The administration and insurer advocates also argue that the additional payments are needed to encourage seniors to switch from the traditional fee-for-service Medicare program in favor of private insurance. They argue that while benefits offered by private insurers cost more today, over they long run an insurer-managed program will cost less than the traditional fee-for-service program.

The Center for Medicare and Medicaid Services, however, estimates that the overpayments to insurers increase costs premiums fee-for-service beneficiaries and will shorten the program’s fiscal solvency by two years.

Democrats have targeted the subsidies as a possible offset to the cost of an increase in federal funding for state children’s health insurance programs, or SCHIP. Mr. Bush has proposed a $20 billion increase in SCHIP funding, but Democrats argue that would lead to fewer children being covered by the program and are advocating a $50 billion SCHIP funding hike.
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