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Can the Senate Finance Committee Come Up with $10 Billion in Medicaid Cuts?

APRIL 28, 2005 -- Under the terms of the fiscal 2006 federal budget agreement announced Thursday afternoon by House and Senate negotiators, the Senate Finance Committee is under instructions to recommend cuts totaling $10 billion over the period 2006–2010. But it's too soon to tell whether there are enough votes on the committee to take all $10 billion from Medicaid, say Senate staffers and health care lobbyists.

Logically, that suggests that Medicare cuts may yet be in the offing under the reconciliation process, which allows spending reductions to be approved in the Senate by a simple majority. But there are reasons to doubt that Medicare will be used to hit the $10 billion target, analysts said.

Sen. Gordon H. Smith, R-Ore., was successful in the budget negotiations in preventing the Finance Committee from having to come up with ways to cut Medicaid or other programs under the panel's jurisdiction by the larger amount that negotiators had proposed—$16 billion.

Even so, it's unclear whether Smith and Maine Sen. Olympia J. Snowe, another key Republican on the committee, will agree to $10 billion in Medicaid reductions. Smith appears to have reached an agreement with the Bush administration on creating a Medicaid commission that would issue recommendations by September on how to make cuts of that size, but how much weight that panel will have with the moderates whose support is key to Medicaid cuts is unclear.

Critics of Medicaid cuts predict that the commission won't be credible, saying it will be dominated by the administration. Smith said on the Senate floor Thursday that "it is my strong urge and plea" that "this commission will be conducted by the Institute of Medicine." But other sources said HHS Secretary Michael O. Leavitt would likely appoint the members of the commission.

Smith himself appeared to concede the likelihood of that, saying Leavitt "is a person in whom I have implicit confidence. He is a man of integrity, he is a man of his word. He understands that his reputation and mine are on the line in constructing the kind of commission that is inclusive, that is bipartisan, that is academic in its nature."

Smith added that, "ultimately you have to trust people to be good, to live up to the public statements that they make."

Liberals wasted no time attacking the idea of a Leavitt-controlled panel. It "appears that a very partisan Medicaid commission may be appointed by the Bush administration. This is the precise opposite of what was originally intended [in legislation proposed by Smith and Sen. Jeff Bingaman, D-N.M.], and will make it a sham commission," said Ron Pollack of Families USA.

Perhaps more of a problem for the administration was the reaction of Montana Sen. Max Baucus, the top Democrat on the Finance Committee whose centrist views helped the White House obtain passage of the Medicare overhaul law. Baucus opposes a Leavitt-appointed commission and made his views known to Leavitt, according to a Senate aide.

Details of how the commission would work were sketchy late Thursday, but a Senate source said that in addition to preparing an interim report by Sept. 1, 2005, it would prepare a final report by Dec. 31, 2006. GOP staffers said Medicaid cuts would not begin before 2007.

Sources said various options were on the table but that one scenario might entail a Leavitt-appointed commission and a larger advisory group that would be named by congressional leaders and the administration. However, the workings of the commission "might still be in flux," one Hill source said.

But once any commission issues a report, the Energy and Commerce Committee in the House and the Finance Committee in the Senate would largely be responsible for how to make the cuts and how big they would be. "I can't tell you what the committee will do," said a Senate aide, adding that it's up to the panel to determine how to carry out the instructions.

Obviously that leaves Medicare as a possibility. But Finance Chairman Charles E. Grassley, R-Iowa, says he does not want to cut Medicare. And Energy and Commerce only has partial jurisdiction over Medicare while the other House panel with jurisdiction, Ways and Means, is charged only with making $1 billion in cuts to programs under its control.

According to one Medicaid analyst, Senate Finance Committee cuts may be more realistic at the $5 billion level than at the $10 billion level. Getting to the former figure through limits on asset transfers and changes in pharmacy reimbursement would be difficult but doable, the analyst said. The National Governors Association, meanwhile, emphatically denied Thursday that governors have reached agreement on a plan involving several billions of dollars in cuts.

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