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CBPP's Budget Reconciliation Roadmap

OCTOBER 13, 2005 -- Two new studies from the left-leaning Center on Budget and Policy Priorities detail Medicare and Medicaid spending cuts that center officials say would help lawmakers meet fiscal 2006 budget reconciliation targets without hurting program beneficiaries.

The Senate Finance and the House Energy and Commerce panels are developing health care spending cut proposals in order to meet budget reconciliation targets. Under the budget reconciliation plan, Finance must find at least $10 billion in savings and Energy and Commerce must find $14.7 billion in savings for programs under the panels' jurisdiction.

CBPP's reports, released Wednesday, urge the panels to follow recommendations from the Medicare Payment Advisory Committee (MedPAC), the National Governors Association, and the Bush Administration's Medicaid Commission to achieve spending reductions in the Medicare and Medicaid programs. Medicare is the federal health insurance program for the elderly and disabled; Medicaid is the federal–state health insurance program for the poor.

CBPP Senior Health Policy Analyst Edwin Park said Congress should follow recommendations in a June MedPAC report that could save—according to the Congressional Budget Office—between $20 billion and $30 billion over the next five years. MedPAC is an independent panel that advises Congress on payment rates for Medicare providers.

One of the MedPAC recommendations Park supported was elimination of a "stabilization" fund set up for private health care plans in the 2003 Medicare law (PL 108-173) to encourage plans to offer prescription drug coverage to beneficiaries.

Senate Finance Committee Chairman Charles E. Grassley, R-Iowa, has proposed eliminating the fund as part of his panel's budget reconciliation package and some House Republicans have expressed support for the idea. But Bush administration and insurance industry officials are likely to object to any changes in the new Medicare drug law, which begins Jan. 1.

Park also urged lawmakers to adopt MedPAC's recommendation that Medicare spend the same amount of money on beneficiaries enrolled in Medicare managed care plans as they do for beneficiaries in fee-for-service Medicare. According to MedPAC, on average, Medicare payment rates to private managed care plans now equal 107 percent of the costs of providing fee-for-service Medicare to comparable beneficiaries, Park wrote in the report.

Other MedPAC proposals CBPP backs include removing what Park described as double payments for medical education costs currently included in managed care reimbursement rates.

A separate Center analysis by Welfare Reform and Income Support Division Director Sharron Parrott examined Medicaid spending reduction proposals from NGA, the administration's Medicaid commission, and the Bush administration.

The ideas include increasing rebates pharmaceutical companies now pay to state Medicaid programs and requiring drug makers to pay those rebates on drugs provided to Medicaid patients by managed care plans.

In addition, studies from the General Accountability Office and the Department of Health and Human Services' Inspector General's office have identified problems with the administration and enforcement of the rebate program. Improved enforcement "would ensure that drug manufacturers are complying with the federal rebate and that Medicaid is getting a more favorable net price for prescription drugs," Parrott wrote.

Another opportunity for savings is in reducing the amount of money state Medicaid programs pay to pharmacies to reimburse them for the cost of medications they provide to Medicaid beneficiaries. Those payments, Parrott notes, tend "to be far above what pharmacies pay wholesalers for the drugs."

If lawmakers embrace other ideas for Medicaid savings, such as increasing beneficiary co-payments or allowing states to change what health services they cover—as endorsed by the governors' association—beneficiaries could be harmed, Parrott concluded.

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