Skip to main content

Advanced Search

Advanced Search

Current Filters

Filter your query

Publication Types



Newsletter Article


Panel Targets Medicare for Spending Cuts as House Keeps Focus on Medicaid

OCTOBER 13, 2005 -- Private insurance plans and home health agencies are targeted for Medicare payment reductions as part of a package of health care spending cuts proposed by Senate Finance Chairman Charles E. Grassley, R-Iowa.

The package, which several sources described as fluid with staff negotiations continuing, would produce $12 billion in mandatory spending cuts over five years, or $2 billion more than the Finance Committee is required to produce under the fiscal 2006 budget resolution (H Con Res 95). The House Energy and Commerce panel has assembled a tentative package of spending reductions focused on Medicaid, according to a draft outline.

The Finance draft would eliminate an incentive fund created by the 2003 Medicare drug law (PL 108-173) to encourage companies to offer the new prescription drug benefit. Grassley's plan also would implement 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, according to sources familiar with the negotiations.

Katrina Relief, Disabled Children
Grassley intends to insert his revised Katrina Medicaid package (S 1716) into his reconciliation measure, as well as legislation (S 183) he has backed for years that would allow middle-income families to buy into Medicaid on a sliding premium scale to cover their disabled children.

The White House opposes the Katrina expansion of Medicaid, and GOP leaders have kept it off the Senate floor. But if the proposal becomes part of the budget reconciliation bill, it would be guaranteed a ride to the floor.

Grassley, however, may have a difficult time gaining a committee consensus on changes to Medicare and Medicaid.

Max Baucus of Montana, the Finance panel's ranking Democrat, has told Grassley he does not want to discuss spending cuts until the Katrina bill passes. Finance GOP moderates Gordon H. Smith of Oregon and Olympia J. Snowe of Maine will object to Medicaid cuts they deem too steep. It is not yet clear whether they will approve of the balance Grassley struck in the draft.

Medicare Changes
Eliminating the "stabilization" fund set up for private health care plans by the 2003 Medicare law would save approximately $6.8 billion over the next five years, while adopting the administration's "risk adjustment" proposal would save $5.4 billion, sources said.

Other Medicare spending cuts under consideration and their projected savings over five years include reducing payments to hospitals for outpatient care ($400 million), reducing the amount of bad debt that skilled nursing facilities can write off to 75 percent from the current 100 percent ($500 million), and a home health market basket freeze ($2.1 billion).

Some say faster implementation of proposals to allow competitive bidding in the Medicare program and linking Medicare Advantage payments to the quality of care they provide—a concept known as "pay-for- performance"—could save as much as $5.5 billion.

The tentative package would give physicians participating in Medicare a zero payment update for one year, averting a scheduled 4.3 percent cut, at a cost of $6.6 billion over five years. The proposal also would include legislation to implement "pay for performance" guidelines for all Medicare providers as well as spend more on payments to rural hospitals and rural home health agencies. In addition, the measure would extend implementation of a cap on therapy services provided to Medicare beneficiaries.

Medicaid Modifications
Concerning Medicaid, both the Finance and Energy and Commerce proposals would revise Medicaid payments for prescription drugs to base them on an "average manufacturer's price," defined in the House draft as a manufacturer-reported price that is the average of actual sales prices, including most manufacturer discounts. That change is expected to save $5 billion over the next five years.

Both packages also would make it more difficult for individuals to transfer their assets to children or others in order to impoverish themselves enough to quality for Medicaid coverage of nursing home care, a step projected to save between $1.5 and $2 billion.

Grassley's tentative Medicaid proposal would require drugmakers to pay additional rebates of approximately $1.5 billion over the next five years, and a managed care provider tax would bring in another $1 billion.

On the Medicaid spending side, the revised Katrina Medicaid package would consume about $6.1 billion of those savings. In addition, Grassley wants to include his so-called Family Opportunity Act, to extend Medicaid to disabled children of families earning up to 300 percent of the federal poverty line, at a cost of $3 billion over five years.

In the Energy and Commerce proposal for Medicaid, states could increase cost-sharing required of beneficiaries, a step expected to raise $2 billion. States also could alter the benefits package available to beneficiaries. The measure also would create health savings accounts for Medicaid beneficiaries. Finally, states would be required to verify an applicant's eligibility for Medicaid or risk reduced federal funding.

Publication Details