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CBO Says Bush Medicaid Plan to Save $27 Billion

March 4, 2005—A Congressional Budget Office analysis of President Bush's fiscal 2006 budget plan released Friday finds the administration's Medicaid overhaul proposal would save $27 billion over the next decade, a figure well below administration projections. The CBO document also states federal spending on Medicare will be $70 billion more than CBO estimated in January for the 2006–2015 period. The higher figure is due primarily to revised estimates of the cost of the new Medicare prescription drug program.

The less-than-expected Medicaid savings coupled with higher costs for the Medicare drug benefit mean budget officials on Capitol Hill will have to dig deeper for savings if they want to help meet Bush's goal of cutting the deficit in half by 2009. The higher Medicare spending numbers will also provide more fodder for GOP conservatives who fear the new benefit will soar in cost in the coming years and want to move legislation to scale it back.

Administration officials have said Bush's Medicaid plan would save $60 billion over the next decade, with $15 billion of those savings spent on children's health care coverage and home-based care for nursing home patients and other changes, making the net cuts to Medicaid $45 billion.

CBO has increased its projection of net spending for the Medicare drug benefit by $54 billion over the 10-year period, with about $36 billion of that amount expected through 2013, the time frame covered by CBO's original cost estimate of the new drug law (PL 108-173) which Congress passed in 2003.

Changes in the estimated net cost of the basic benefits of the Medicare drug bill account for somewhat more than half of the revision, CBO stated, while changes in the cost of the low-income subsidies provided in the bill account for the rest of the increase.

The CBO's Medicare changes "reflect both a refinement of CBO's estimating methods and provisions in the final rules governing formulary requirements and the eligibility for the low-income subsidy that differ from those CBO had anticipated on the basis of legislative language," CBO Director Douglas Holtz-Eakin wrote Friday in a letter to Senate Appropriations Committee Chairman Thad Cochran.

On Medicaid, Bush and congressional Republicans were already meeting stiff resistance from the nation's governors and some lawmakers.

Opponents of the plan say it will force states to reduce the number of beneficiaries and provide less coverage to those who do qualify. But administration officials have said the plan would give governors more flexibility with "optional" populations—people who would not qualify for Medicaid but who have been allowed to join the rolls at states' discretion.

In an interview, CMS Administrator Mark B. McClellan said much of the difference between the CMS and CBO Medicaid estimates is because CBO "did not take a position" on three elements of the Bush Medicaid plan. McClellan said the CBO $27 billion figure is a net savings number that should be compared to the $45 billion CMS net savings estimated, not the $60 billion gross savings figure. McClellan predicted that the differences between the $27 billion and the $45 billion will narrow pending further discussions with CBO.

Concerning the CBO's Medicare drug estimates, McClellan said his agency is doing "everything we can to keep costs down. We have all the legislative authority we need to do that." Senate Budget Committee Chairman Judd Gregg, R—N.H., said in a statement Friday he was not surprised that the CBO estimates differed from the administration's figures.

"That is the nature of estimates," Gregg said, adding that his panel is still on target to "mark up a budget in committee next week that cuts the deficit in half, holds the line on discretionary spending and includes mandatory savings."

While there are plenty of lawmakers who want to accomplish that goal, it may be a difficult one to reach, said Urban Institute President Robert D. Reischauer, a former CBO director.

"It's not like there aren't significant groups in Congress that would like to see entitlement caps to curb the growth of Medicaid, but I think it will be difficult to construct majorities in both houses for those types of proposals," he said.

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