OCTOBER 21, 2005 -- The House Ways and Means Committee is likely to turn to programs that serve low-income Americans to meet its budget reconciliation targets, the Center on Budget and Policy Priorities (CBPP) predicted Friday.

In a conference call with reporters, analysts from the left-leaning think tank said Ways and Means members would likely look to trim as much as $8 billion in spending from programs such as the Earned Income Tax Credit, the Supplemental Security Income program, and the Temporary Assistance for Needy Families program.

"There are clear indications that the House Republican leadership is reluctant to have any cuts in Medicare in reconciliation," said Robert Greenstein, the center's executive director.

A spokesman for the Ways and Means panel said Friday that no final decisions had been made on how the committee would meet its share of cuts.

On Thursday, Senate Finance Committee Chairman Charles E. Grassley announced his package of Medicare and Medicaid spending cuts that would save a net of $10 billion over five years.

Part of Grassley's plan would eliminate a fund created by the 2003 prescription drug law (PL 108-173) to encourage preferred provider organizations to offer regional coverage to Medicare beneficiaries. Lawmakers say the fund has proved unnecessary because plenty of plans stepped forward.

The industry says eliminating that fund—which would save about $5.4 billion over five years—would create a lack of trust in the government's ability to act as a good business partner.

"Just two years after enactment, and three weeks before beneficiaries start making choices [on drug plans], members of Congress are proposing to change the rules," said Karen Ignagni, president of America's Health Insurance Plans. "It sends a serious message that members of Congress weren't serious about private–public partnerships."

On Oct. 18, Ways and Means Chairman Bill Thomas played down the idea of targeting the "stabilization" fund alone. "We are in the business of managing the pain," he said, indicating several programs could be pared.

If the Ways and Means panel turned to other programs within its jurisdiction, such as the Temporary Assistance for Needy Families or the Earned Income Tax Credit (EITC), the results would be devastating on the nation's poor, Center analysts said Friday. A $1 billion cut in the EITC, for example, would mean that 110,000 families would lose the credit, the analysts said.

OCTOBER 19, 2005 -- The fiscal crises many states experienced from providing Medicaid in past years has eased and many are expanding coverage for their residents, according to three surveys released Wednesday by the Kaiser Family Foundation.

But possible federal cuts to the joint federal–state health insurance program for the poor could impose more costs on the states and provide long-term challenges to providing coverage in the future, said the surveys' authors.

After coping with a large gap between state revenues and Medicaid spending in 2002 and 2003, one survey showed that state revenues have increased as Medicaid spending and enrollment growth has slowed between 2004 and 2005.

The gap between Medicaid spending growth and state tax revenue in 2005 has been the lowest since 1999, according to the survey.

The survey found that all 50 states are considering ways to revamp their programs to expand coverage and contain costs, even in the face of budget woes. More states are increasing co-payments, creating disease management programs, and expanding programs for long-term care, said Vernon Smith, principal of Health Management Associates and author of one of the surveys.

Another survey showed that two states, Missouri and Tennessee, implemented deep eligibility cuts, but 20 other states are expanding eligibility or reducing premiums. Twelve states are expanding eligibility for children, pregnant women, and parents and eight states have adopted simplifications for enrollment.

And fewer states took action that would have made it more difficult for eligible children and parents to keep health coverage.

The survey showed that states still have to deal with rising health costs, less employer-sponsored coverage, and a growing aging population, all of which raises their Medicaid spending.

Implementation of the new Medicare drug benefit in 2006 (PL 108-173) also would reduce Medicaid rebates from pharmaceutical manufacturers, according to Jeff Crowley, project director of the Georgetown University Health Policy Institute and author of one of the reports.

The health care experts said states would face many challenges if the federal government cuts funding for Medicaid. Congress is considering a package of reductions to Medicaid, the federal–state health care program for the poor, as part of the fiscal 2006 budget reconciliation process.

"We are at a turning point in how much we think of (Medicaid) as a national program," said Alan Weil, executive director of the National Academy for State Health Policy. "There is tension between state and federal government . . . we need to think about who the burden is going to fall upon."

OCTOBER 21, 2005 -- Opening the door to what could be a nationwide trend, Health and Human Services (HHS) this week approved a controversial Florida plan giving the state greater power to alter benefits and bring its yearly spending growth on Medicaid below the current rate of 13 percent.

Critics of the Florida plan called it a threat to health care for some of the nation's most vulnerable citizens. But Florida officials say they must overhaul the $15 billion program or it will consume nearly 60 percent of the state's budget by 2015. It now takes up 25 percent of the state's budget.

The plan, which would enroll an estimated 212,000 Medicaid beneficiaries in Florida's Broward and Duval counties in its first phase, must be approved by Florida's legislature to take effect. It would be phased in over five years to include most of the state's 2.2 million Medicaid beneficiaries.

How It Will Work
Authorized under the section of Medicaid law (1115) that allows demonstration programs, the Florida demo will calculate an annual amount to provide for each enrollee based on his or her health status and history of using health care services.

Beneficiaries would pick a managed care plan "with a benefit package that best suits their needs," HHS said in a news release, but every plan must cover benefits mandated by federal Medicaid law. Medicaid programs now offer a mix of mandatory and optional services; "optional" benefits include prescription drugs.

Plans can enhance benefits to attract enrollees, HHS noted. Beneficiaries also can opt out of Medicaid and instead receive subsidies for their share of payments for employer-sponsored insurance benefits.

"If a beneficiary chooses employer-sponsored coverage, they will be entitled only to the benefits covered by that plan as well as to any cost-sharing requirements, even if they exceed normal Medicaid limits," HHS added. "Beneficiaries considering switching to an available employer plan will be able to receive individualized counseling about its potential benefits and risks."

Beneficiaries who opt out can rejoin Medicaid within 90 days if they so choose.

The demo also establishes an "enhanced benefit account" program that rewards beneficiaries who take part in weight management, smoking cessation, and diabetes management programs with funds to buy non-covered health-related items such as over-the-counter drugs.

The demo also creates a $1 billion yearly fund to help the state pay safety net providers caring for the uninsured.

Joan Alker, a researcher at Georgetown University's Center for Children and Families, said HMOs and other providers will have "unprecedented flexibility" to alter benefits. She said adults will face "new annual maximum benefit limits." While all plans will have to offer mandatory benefits, "they will have flexibility to decide how much of a service to offer," subject to "a sufficiency test."

Alker added that "the situation is different for optional services. Plans will not be required to offer previously available optional services [such as prescription drugs, or durable medical equipment] and they will have flexibility with respect to the amount, duration and scope for the optional benefits HMOs and other plans do choose to offer."

An "actuarial equivalence" test is supposed to assure that benefits offered by private plans have the same dollar value as the previous combination of mandatory and optional benefits. But Alker said it's unclear how much the state would increase that dollar value each year.

She added that "linking the actuarial equivalence standard to the value of the package for the average member of the population raises questions about whether the package will be adequate for someone with above average needs in any given year."

Effects of the Plan?
Alker also said the demo, which relies on private health plans, could sharply reduce levels of care while raising out-of-pocket costs to the state's most vulnerable residents.

She called it "a radical and unprecedented restructuring," warning that "the chronically ill and disabled could have the most to lose under this approach."

But Florida's Republican Gov. Jeb Bush said the plan "empowers patients and expands access to best serve our most vulnerable citizens for years to come."

"Florida's reform plan modernizes an outdated program to better serve participants and bring predictability to state spending," said the state's Agency for Health Care Administration.

HHS officials acknowledged the potential influence of the plan in announcing its approval. "The Florida demonstration will be very valuable in informing the national dialogue about reforming Medicaid to better serve the people who count on it," said Mark B. McClellan, administrator of the Centers for Medicare and Medicaid Services.

McClellan said the program "provides a framework for improving care and making Medicaid more sustainable without eliminating services or restricting eligibility."

Backers of the plan say the efficiencies it generates through a system of competing health plans, coordinated care, and reduced fraud will mean no lessening of needed treatment.

OCTOBER 20, 2005 -- After weeks of negotiations, Senate Finance Committee Republicans on Thursday agreed on a package of Medicare and Medicaid spending cuts that would save a net of $10 billion over five years, meeting their target under this year's budget resolution.

Chairman Charles E. Grassley, R-Iowa, scheduled a formal markup of the package for 4 p.m. on Oct. 24. The proposal would carve a net $4.26 billion from Medicaid, the joint federal–state health insurance program for the poor, and a net $5.76 billion from Medicare, the federal health program for the elderly and disabled.

As expected, the major Medicare cost savers in the bill include eliminating a fund created by the 2003 Medicare drug law (PL 108-173) to encourage preferred provider organizations to offer regional coverage to Medicare beneficiaries. Lawmakers say the fund has proved unnecessary, because plenty of plans stepped forward to offer such coverage. Scrapping that "stabilization" fund would save about $5.4 billion over five years. "The need for the stabilization fund is dubious at best," Senate Finance Health Policy Director Mark L. Hayes told reporters at a Thursday briefing.

The Grassley proposal also would save about $6.5 billion over five years by implementing language in the Bush administration's fiscal 2006 budget proposal to give higher payments to insurers that cover sicker patients and lower payments to plans that enroll healthier patients.

A Medicare "pay for performance" provision for acute-care hospitals, physicians, Medicare Advantage plans, and other Medicare providers is expected to save about $4.5 billion over five years, according to Finance documents. The bill also includes a one-year, 1 percent payment increase for physicians, averting a 4.4 percent scheduled cut. Physicians would not have to participate in the "pay for performance" program to receive the update, Hayes said.

American Medical Association President J. Edward Hill praised the increase. "We look forward to working with the House to build upon the Senate's progress on this issue of critical importance to our nation's seniors and the physicians who care for them," Hill said in a statement Thursday.

Hayes said the physician payment update would increase Medicare beneficiaries' Part B premiums by a net of 42 cents per month because other provisions of the Grassley package would lower costs for Part B, which covers physicians visits and other outpatient services.

The Finance bill also includes $1.8 billion over five years to funnel extra Medicaid money to states affected by Hurricane Katrina. That is significantly less than Grassley and ranking Democrat Max Baucus of Montana had sought, but it nonetheless would help states with some of their unexpected health costs from the hurricane.

Hayes called the measure a "placeholder," indicating Grassley may seek to pass a more sweeping version of the legislation (S 1716) he is co-sponsoring with Baucus. "We are still working on other ways to move this spending."

Grassley's draft also includes $834 million over five years to fund his legislation (S 183) to allow families at or below 300 percent of the federal poverty level to buy Medicaid coverage for their disabled children.

The Finance measure would also make a series of changes to the way Medicaid pays for drugs, including redefining the "average manufacturer price" to reflect discounts and rebates available to retail pharmacies. The package of prescription drug payment changes would save about $4.6 billion over the next five years. In addition, the measure would increase the rebates for covered outpatient drugs to 17 percent from 15.1 percent, saving about $1.1 billion over the next five years.

Grassley's bill would also overhaul current Medicaid asset transfer rules but it would not alter the current three year "look back" asset transfer period for Medicaid beneficiaries.

Other provisions in the package would:

• Reduce Medicare's reimbursement of skilled nursing facility bad debt from unpaid beneficiaries' co-payments and deductibles from 100 percent to 70 percent of allowable costs.
• Prohibit new physician-owned limited service hospitals from having any ownership or investment interest by physicians who refer Medicare or Medicaid patients to the hospital. The measure would also confirm that the "whole hospital" exception would not apply to any new physician-owned limited service hospital effective as of June 8, 2005.
• Provide additional funding to states facing shortfalls in State Children's Health Insurance Program funding and expand outreach and enrollment activities to get more children covered.
• Put in place a series of measures to encourage the purchase of long-term care insurance.
• Freeze implementation of the so-called "75 percent rule" at 50 percent level for two years through June 30, 2007. Hospitals or units that qualify as inpatient rehabilitation facilities qualify for higher Medicare reimbursements.
• Maintain current moratorium on therapy caps for one year.
• Encourage states to aggressively Medicaid waste, fraud, and abuse.

OCTOBER 21, 2005 -- Americans are vastly underestimating how much they will spend on health care when they retire, a survey has found.

Nearly 30 percent of pre-retirees don't know what to anticipate for their health care needs and almost 40 percent have spent less than an hour in the last year planning for health benefits in retirement, the survey showed.

The survey, released Thursday, questioned more than 1,000 adults ages 45 to 75 who were grouped into retiree and pre-retirement age categories as well as by gender. The report showed that as Americans plan for retirement, they are looking at their financial situation and not their health benefits. Aetna, the Financial Planning Association (FPA) and Women's Policy Inc. sponsored the survey.

Fifty-two percent of both the retirees and the pre-retirees surveyed said they expected to spend less than $300 a month on health care expenses. But retirees in general spend about $640 a month on health costs, the survey's sponsors said.

Other findings of the survey include:

• 31 percent of pre-retirees would rather clean their bathrooms or pay bills than plan for retirement.
• 36 percent of pre-retirees say they have spent more time on home improvements than on retirement planning in the last year.