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From <em>CQ Weekly:</em> Spending Cut Plans Tamper with Entitlements

NOVEMBER 28, 2005 -- The effort to reconcile House and Senate spending cut plans next month will include a health care debate that not only pits conservatives against moderate Republicans—as expected—but will force Congress to choose between the nation's two major entitlement programs: Medicaid and Medicare.

At issue is whether to trim the federal-state program that provides health care to the poorest Americans—especially just months after Hurricane Katrina—or whether to tamper with one of the president's top initiatives, the Medicare prescription drug program, which goes into effect Jan. 1.

Medicare Drug Coverage by Region
In their orders to trim spending for fiscal 2006, House and Senate committees were encouraged by the White House and GOP leaders to find ways to cut Medicaid. But moderate Republicans and Democrats, particularly in the Senate, instead opted to look at ways to rein in spending on the health program for the nation's elderly.

The Senate's version of the fiscal 2006 reconciliation bill (S 1932) does just that, targeting one particular fund that some say has become extraneous since the Medicare prescription drug law (PL 108-173) was enacted two years ago. But that fund—designed to encourage private insurers to administer the drug benefit—was one of the sweeteners that persuaded reluctant House Republicans to support the drug law.

By hammering out their separate reconciliation plans over the last month, House and Senate leaders already have had to negotiate health care spending to get the individual measures through their respective chambers.

In the House, GOP leaders softened proposed cuts to Medicaid, as well as to the food stamp program, while the bill was being debated in the Rules Committee.

And in the Senate, moderate Republicans, led by Gordon H. Smith of Oregon and Olympia J. Snowe of Maine, threatened to derail the Senate's spending package if savings dipped into Medicaid benefits and affected care for the poor.

To win their support, Finance Committee Chairman Charles E. Grassley, R-Iowa, drew up a compromise provision that would eliminate the Medicare law's stabilization fund. The fund was created to provide incentives for preferred provider organizations, or PPOs, to offer regional health plans for Medicare beneficiaries. The fund is estimated to cost about $10 billion over 10 years.

Inclusion of the fund in the Medicare bill was key to gaining the support of House conservatives, who saw it as a way to encourage more involvement from the private sector in Medicare.

Democrats and some GOP moderates have argued that all but three of the 26 service regions designated under the Medicare law are served by more than two private health plans, making the fund superfluous. But conservatives argue that the government has to prove it can be a good business partner to health insurers and work hard to encourage more PPOs—which they say operate more efficiently and save more money than the government—to sign on to offer Medicare benefits.

Under the Senate reconciliation bill, eliminating the fund would save about $5.4 billion over five years.

But efforts to scrap the fund could encourage Congress to make other changes to Medicare and revive the bitter 2003 debate over the program. That could prove detrimental on the eve of the debut of the new drug benefit. The White House has threatened to veto any budget agreement that scraps the fund.

"Superficially, it's hard to argue we need it, given that so many plans chose to participate," said Joe Antos, a health policy expert at the conservative American Enterprise Institute. "But this is the old game of pulling the rug out from under [health care] plans. It's a smaller rug, but it's still pulling it out from under them."

In the House, Ways and Means Chairman Bill Thomas, R-Calif., refused to touch Medicare to reach his committee's spending reduction target, and the Energy and Commerce Committee found about $11.4 billion of its savings from Medicaid. In contrast, only $4.3 billion in savings from the Senate bill would come from Medicaid.

The Bush administration's budget proposal tracks more closely with the House sentiment and outlines broad changes to Medicaid, including giving more administrative flexibility to states, increasing cost-sharing and cracking down on fraud.

Conservatives had hoped to increase cost-sharing in Medicaid and inch toward a system in which consumers have more of a stake in their health care decisions.

"Today Medicaid lacks any meaningful co-payment for services, no matter the cost.," Energy and Commerce Chairman Joe L. Barton, R-Texas, wrote in a letter to colleagues earlier this month, arguing that the increases in his bill would "raise cost awareness and encourage beneficiaries to take more responsibility for their health care spending."

Resisting Medicaid Cuts
In the House, the plan was to raise the co-payment required of most Medicaid beneficiaries to $5 from $3 and allow states to add a drug co-pay for pregnant women and children, the first time either group would be charged any kind of cost-sharing. They also included measures to allow states to begin charging premiums for Medicaid programs.

But moderates, who made it a priority to avoid changes that would directly affect beneficiaries, fought the changes and kept the co-pay at $3. The drug co-pay and premiums, however, remain in the bill.

Moderates in the Senate also beat back increases to cost-sharing in their bill.

Although the House measure goes further than the Senate's in putting the brakes on Medicaid spending, the bill is far from the entitlement overhaul the White House and conservatives wanted, which would have given much more flexibility to states.

A Bush administration proposal to tighten restrictions on seniors who transfer assets in order to qualify for Medicaid's long-term care services also gets different treatment in the House and Senate bills.

The House bill would extend the "look-back" period in which states examine a senior's finances to determine if the person deliberately impoverished himself by transferring assets below market value from three years to five years. It also changes the way penalties are applied, by changing the start date of a penalty to ensure seniors have not exhausted the penalty period by the time it is applied.

The House also includes a provision that for the first time would count home equity against Medicaid eligibility and deny seniors with homes worth more than $750,000 Medicaid long-term care coverage.

Despite strong White House backing for the proposals, the Senate version contains none of these provisions. That reflects a belief among moderate Republicans and Democrats that asset transfer rules are unfair because seniors often legitimately transfer assets, for example by buying a car for their children or paying tuition for a grandchild. Conservatives, in contrast, refer to the "shell game" that seniors and their lawyers play with their savings that have resulted in Medicaid paying nearly half of the over $180 billion the nation spends on long-term care services. Little reliable data exists on the true scope of the problem.

Senate moderates are unlikely to abandon their stand on Medicaid cuts given the protracted negotiations earlier this fall, and House conservatives probably will have to yield ground to the more closely divided Senate.

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