- The Washington Times - Thursday, February 8, 2007

The White House performed a magic act this week when it came up with Medicare payment cuts in the 2008 budget, and in the coming months Congress will try to pull its own rabbit out of a hat.

The Bush Administration sent Congress the message that it intends to pay for $100 billion in tax cuts by slowing the rate of growth in the public health care programs Medicare and Medicaid. The administration instructed Congress to find $66 billion in Medicare savings over five years.

“The payment cuts are unrealistic, they will never be swallowed by the political process or the health care industry,” said Dan Mendelson, president Avalere Health, a health care consulting firm. “These numbers are just pulled out of thin air.”

Cutting health care payments is rarely a politically tenable proposition for lawmakers, even in a nonelection year.

But this year the stars are aligned for cuts in Medicare payments to providers. That is because Congress is going to spend money this year to expand children’s health insurance and under the new “PAYGO” Congress, lawmakers will have to find offsetting cuts or tax increases.

“Improving and expanding the State Children’s Health Insurance Program (SCHIP) is this committee’s top health care priority this year,” said Sen. Max Baucus, Montana Democrat and chairman of the Senate Finance Committee.

Mr. Baucus’ priorities for the SCHIP program include covering the 6 million uninsured children and “not increasing the number of Americans without health insurance.”

That probably means expanding the program to cover the parents of the uninsured children or giving states more money to cover more people.

House Democrats have let it be known they will push for an expansion of the program and any expansion means spending offsets under the new “PAYGO” Congress.

To maintain the SCHIP funding levels, the congressional budget office estimates Congress will have to put down $15 billion. The administration’s budget allocates around $5 billion and Democrats are likely to push for in the neighborhood of $30 billion. So Congress must find its magic wand.

“I think they’re close on the generalities but it’s the details that will be very different,” said Joe Antos, a health care policy analyst at the American Enterprise Institute. “The Democrats will probably cut Medicare payments to hospitals but they’ll do it in a very different way than the president’s budget suggests and will look for other spending cuts.”

Congress could follow the White House’s lead on hospital payment cuts to a degree. That is where most the Medicare money is spent and at this current spending rate the Medicare Hospital Insurance Trust Fund will go bust in 2015.

But Democrats, especially in the House, will divert from the administration and go for payment cuts to private health care plans participating in Medicare. The administration’s budget leaves those payment rates alone. Also, Democrats say significant savings can be found by forcing the administration to negotiate drug prices in the Medicare drug benefit.

Another route that Democrats favor is raising taxes. Therefore the ultimate magic trick may be an attempt to raise the taxable income level on Social Security taxes and divert the new revenue from the Social Security fund to Medicare — and get Republicans to go along.

The downside is that a tax increase would not address growing health care costs.

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