Legislative Update: Big Deficits Spell Risk of Benefit Cuts and Higher Costs

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Legislative Update: Big Deficits Spell Risk of Benefit Cuts and Higher Costs

The federal deficit is getting worse, and this is likely to spell bad news for seniors. Huge federal deficits create intense pressure for Congress to cut Medicare and Medicaid, despite promises to add expensive new Medicare prescription drug coverage and rapidly rising Medicaid rolls. Indeed, the Administration and Congress are in the process of working on plans to overhaul both health insurance programs.

President Bush proposed $400 billion for adding a prescription drug benefit, but his proposal would overhaul Medicare to provide the benefit. His initial proposal was to offer a more comprehensive package of prescription drug benefits to seniors who would leave traditional Medicare to join private plans, which the president says would save Medicare money. For those remaining in traditional Medicare, his plan would offer a prescription drug discount card, perhaps coverage for $600 in drugs, and “catastrophic” coverage if a person’s out-of-pocket costs exceed a certain amount. The president outlined broad principles and has left it to Congress to work out the details.

The devil is in the details. Recently the Medicare Trustees reported that the program is closer to insolvency than expected, blaming lower-than-expected payroll tax revenues, and higher-than-expected hospital costs. The Congressional Budget Office reports that state Medicaid programs grew on average about 13% from 2001 to 2002.

Cutting popular programs like Medicare and Medicaid is politically risky, and in the past has cost politicians their seat in Congress. Thus, lawmakers are likely to be wary of making outright program cuts. TSCL believes, however, that we are likely to see proposals for higher deductibles and new co-payments, especially for home health care services, which do not require co-payments now.

In addition, Members of Congress are likely to be more inclined to look favorably at less obvious options to cut benefits—like changing the index used to calculate Cost-of-Living Adjustments (COLAs) to the new “chained” Consumer Price Index (C-CPI-U), as recently suggested by Federal Reserve Chairman Alan Greenspan.

Members of Congress juggle many competing priorities, but your letters, phone calls, e-mail and visits play a vital role in convincing them to support measures that would strengthen the financing of our nation’s insurance programs without making draconian cuts or increases to out-of-pocket costs.

Many of the new proposals would make dramatic changes to the programs, but it is not known whether those proposals can save money. However, one area where savings are likely to be found is clamping down on Medicare billing abuse. Taking more aggressive action to audit Medicare claims and a zero tolerance for improper payments has saved the program billions in the past.

For a related story see, “Greenspan Urges Use of New CPI—Would Cut COLAs” at http://www.tscl.org/NewContent/101828.asp.

June 2003