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How health care will fare under the proposed balanced budget

From the June 1997 ACP Observer, copyright 1997 by the American College of Physicians.

By Kathleen Haddad

While there has been considerably less rancor over the federal budget process this year than in years past, the stakes remain high. Current budget legislation will decide the fate of major health initiatives, such as the solvency of Medicare, children's health coverage, the regulatory status of provider-sponsored organizations, Medicaid access and quality initiatives.

The White House and Congress have agreed on the broad outlines of a budget and drafted a budget resolution, which was approved by both houses of Congress just before Memorial Day. The resolution, which would balance the federal budget by 2002, calls for 5-year savings of $300 billion and net tax cuts of $85 billion. Cuts to Medicare account for the largest portion of these savings—$115 billion—and would extend Trust Fund solvency by a decade. While Medicaid would see cuts of $14 billion, $16 billion would be allocated to cover half of the nation's 10 million uninsured children.

Most of the Medicare savings appear to come from the following sources:

  • Reduction of provider reimbursement—particularly for hospitals.
  • Continuation of premiums at the current rate, funding 25% of Part B (physician and outpatient services) expenditures. Premiums were scheduled to decline.
  • Transition to a prospective payment system for home health care and nursing homes.
  • Shifting home health care expenses from Part A (which pays for hospital costs out of the Medicare Trust Fund) to Part B.

In Medicaid, savings appear to come from cuts in disproportionate share hospital payments—payments made to hospitals that serve large numbers of Medicaid recipients—and repeal of the Boren amendment, which requires "reasonable" reimbursement to Medicaid providers. Savings are also expected from allowing states more flexibility in how they administer their Medicaid programs.

The budget resolution, which does not require the president's signature, is only the first step in creating a federal budget. Congress will attempt to transform this broad outline into detailed taxing and spending legislation—known as the budget reconciliation bill—by Oct. 1, the start of the federal fiscal year.

Despite the rather harmonious initial budget agreement, there is no guarantee that Congress and the president will be able to come together on the details. In recent years, agreement was never reached and the government was financed by "continuing resolutions," which generally extended the previous year's budget policy. However, both parties appear to recognize voter insistence on compromise—at least for now.

Kathleen Haddad is Senior Associate for Policy and Communications in ACP's Washington, D.C., office.


The College's long-term approach to making Medicare solvent

While current budget proposals would keep Medicare solvent for a decade, ACP is working with legislators to achieve more fundamental changes.

In May, ACP released a position paper urging policy-makers to adopt more visionary reforms that would improve quality and save $65 billion over five years. These reforms focus on coordinating care—both in managed care and fee-for-service Medicare—to better manage health costs and quality.

Sens. John Breaux (D-La.), John Chaffee (R-R.I.) and Tom Harkin (D-Iowa) are working with the College on bills that would incorporate ACP's proposals for case management, competitive bidding, direct physician contracting and other reforms. Sen. Breaux, for example, is looking at ACP case management proposals to encourage the use of preventive services and ensure that patients receive the medical and non-medical services they need.

ACP's Medicare reforms differ from previous Congressional proposals in rejecting the idea that shifting seniors to managed care plans would solve cost problems or improve quality.

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