Bush's Medicare-Cut Proposal
Would Slam Nation's Hospitals

SARAH LUECK / Wall Street Journal 7feb2006

WASHINGTON — Hospitals would take the biggest hit under President Bush's proposal to reduce Medicare spending by $35.89 billion over the next five years.

The plan, detailed yesterday in Mr. Bush's 2007 proposed budget, would reduce payments to medical providers by about $30 billion. Hospital payments would be cut more than $8 billion over five years, while nursing-home payments would decrease more than $5 billion under the plan. The proposal faces an uphill battle in Congress, where local hospitals hold great sway with lawmakers.

Sen. Charles Grassley, an Iowa Republican who heads the Senate committee that oversees Medicare, said that budget-cutting legislation recently passed by Congress "wasn't an easy legislative accomplishment. Any more reductions of a significant scope could be difficult this year."

The Bush proposals are part of a broader effort to rein in federal spending, at least incrementally, on health programs like Medicare — the federal health program for the elderly and disabled. Bush officials said the proposals would slow the growth in annual Medicare spending to 7.7% from 8.1%. "This is necessary for us to maintain its sustainability," said Health and Human Services Secretary Michael Leavitt.

Dick Davidson, president of the American Hospital Association, called Mr. Bush's proposals "a step backwards in protecting access to care for all Americans."

The Bush budget gave additional details on an administration proposal to charge higher premiums for Medicare beneficiaries with incomes greater than $80,000 a year. Under current law, that income group already is required to pay more, but Mr. Bush wants to eliminate an adjustment that automatically raises the income thresholds to reflect inflation. As a result, 3.8 million people would pay $48 to $262 more each month by 2016, according to the program's actuaries. Getting rid of the inflation adjustment would save $40 million over five years, the budget said.

Mr. Bush also proposed a new requirement to automatically reduce federal spending on Medicare when it exceeds 45% of the total program cost for two years in a row. That would occur for the first time in 2017, according to administration projections, assuming Congress accepts the savings Mr. Bush is proposing. The proposal strengthens a trigger in current law, which calls on the president to propose legislation reducing spending. The administration is pushing for the change because "nothing in current law compels action," said Mark McClellan, head of the agency that runs Medicare.

The Bush budget also tries to drive up the number of people with health-savings accounts by providing bigger tax breaks to people who have the accounts. Under the administration's projections, the number of people with the accounts would rise to 21 million four years from now, compared with the 14 million under existing law. The tax-favored accounts, which must be combined with high-deductible health insurance, make people more sensitive to how much they are spending on medical care and would give businesses more options for covering workers, Bush administration officials said.

Mr. Bush's HSA-related proposals would cost the Treasury about $60 billion over five years.

Many HHS agencies would see reductions under the budget proposal, including the Centers for Disease Control and Prevention, which would have its funding cut by $179 million next year.

—Betsy McKay and Bernard Wysocki Jr. contributed to this article.

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