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Senate Budget Plan Laden with Health Care Reserve Funds

By John Reichard, CQ HealthBeat Editor

March 16, 2007 -- The budget blueprint approved Thursday by a Senate panel reflects a long Democratic wish list for action on health care this year with little guidance on how to fulfill it. The exception appears to be a $50 billion reserve fund the plan would create for expanding the State Children's Health Insurance Program (SCHIP); the authors of the plan signaled that $15 billion should come from Medicare cuts.

The fiscal 2008 plan adopted by the Senate Budget Committee signals its health care spending priorities by creating a number of "budget-neutral reserve funds." Unlike the $400 billion reserve fund for Medicare drug coverage that congressional budget writers adopted in 2003, this year's reserve funds require offsets in the form of cuts or revenue increases elsewhere in the federal budget.

Congressional adoption of the plan doesn't actually require lawmakers to act on the priorities suggested by the reserve funds. However, it is a rough guide to what they might do, and to how much they might spend, to the extent that lawmakers do tackle health care this year.

The most prominent reserve fund is for SCHIP; it provides up to $50 billion over five years for reauthorization of the program "if such legislation maintains coverage for those currently enrolled in SCHIP, continues efforts to reach uninsured children who are already eligible for SCHIP or Medicaid but are not enrolled, and supports states in their efforts to move forward in covering more children."

The budget neutral feature of the fund means all $50 billion would have to come from cuts elsewhere in the federal budget, from increasing taxes or otherwise increasing revenue, or a combination of the two.

The budget resolution assumes a $15 billion reduction over five years in the Medicare spending "baseline," which is the federal projection of Medicare spending based on current law. It also assumes a $15 billion increase in the baseline for spending on a budget category that includes SCHIP. In other words, the committee is anticipating that at least $15 billion of the $50 billion for SCHIP will come from Medicare cuts.

But that doesn't rule out larger Medicare cuts. For example, all $50 billion in cuts could be taken from Medicare, said Robert Greenstein, executive director of the Center on Budget and Policy Priorities in a telephone press briefing Friday.

But no more than $35 billion of the $50 billion could come from revenue increases, he said. Medicaid cuts also could be used to pay for SCHIP funding. Sen. Gordon Smith, R-Ore., has proposed an increase in the federal tobacco tax to fund an increase in SCHIP coverage for uninsured children and pregnant women whose income is up to 300 percent of the federal poverty line.

The plan also would create a fund for costs associated with giving the Health and Human Services secretary authority to negotiate prescription drug reimbursement levels under the Medicare drug benefit. Any savings from the measure would have to be used to improve the drug benefit or reduce the deficit.

The plan also includes language that would prepare for possible legislation blocking a scheduled cut in Medicare payments to doctors. The language does not specify how much money the committee has in mind, but Sen. Judd Gregg, R-N.H., cited a figure of $50 billion or more in discussing the expense that might be involved. It was unclear whether Gregg would favor spending those sums.

Up to $5 billion is allotted for a reserve fund that would make improvements to the drug benefit. The plan doesn't say what those improvements are, but both House and Senate Democrats are lining up to push for passage of legislation that would sign up millions more seniors and disabled people for the extra help provided to low-income beneficiaries.

Another reserve fund is for costs associated with legislation that "makes health insurance coverage more affordable or available to small businesses and their employees without weakening rating rules or reducing covered benefits."

The plan also creates a fund for legislation that "authorizes the Food and Drug Administration to regulate tobacco products and assess user fees on tobacco manufacturers and importers" to cover the costs of that regulation.

Another fund reflects the interest of the committee in creating an entity to conduct research comparing the effectiveness of various types of products and treatments. Analysts say such research eventually could reap tens of billions of dollars in health care savings.

The committee expressed an interest in beefing up efforts to fight health care fraud, which researchers say could generate many dollars in savings for each dollar spent. The budget plan says up to $383 million may be spent on the fraud control program at HHS without it counting against limits on discretionary spending.

Overall, the plan provides for an increase in non-defense discretionary spending of a little more than 1 percent, adjusted for inflation, according to a Center analysis released Friday.

Other funds would be established for legislation to improve medical care and disability benefits and disability evaluations and claims processing for wounded service members. Language in the budget resolution also aims to address "deficiencies at the Walter Reed Army Medical Center."

Still other reserve funds address legislation to promote the quality of long-term care, fund adoption of health care information technology and create parity between insurance benefits for mental illnesses and other illnesses.

And there's even a reserve fund for "health care reform" to cover the uninsured—the creation of which is contingent on enactment first of SCHIP reauthorization.

But as Cuba Gooding, Jr., might say: "Show me the money!"

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