Wednesday, January 2, 2008

The Budget Outcome--Everything Was Decided and Nothing Was Decided

The Budget agreement, SCHIP, the Medicare Physician Fee Cut, and Medicare Advantage HMO payments.

For months, I have been telling you four things:
  • The federal budget impasse would be resolved because Democrats and Republicans weren't going to go home without their earmarks. In predicting the budget outcome you might recall my telling you to follow the "pork."
  • SCHIP would not be allowed to expire and would be extended.
  • The 10% Medicare Physician Fee cut would be avoided just as it has been for a number of years in a row.
  • Democrats were adamant about cutting Medicare Advantage payments as a means to pay for the Medicare physician fee cut and seeing the program's payments ultimately equalized with the traditional Medicare program.
This was a great year for earmarks or "pork-barrel spending." When the day was done about 9,000 earmarks were inserted in the final bill in addition to about 3,000 more that were in the earlier defense appropriations bill--bringing the total to about 12,000!

The Democrats wanted $22 billion more in domestic money than President Bush wanted--about a 2% difference. The Democrats later offered to "split the difference" looking for $11 billion more--which Bush quickly rejected. In the end Bush got his cap--but they also agreed to about $11 billion more in "emergency funding" above the cap.

The Democrats also made Bush pay by cutting many of his favorite programs to get in under his cap. The alternative minimum tax (AMT) fix had no funding so will add $50 billion to the budget deficit. All told, funding for the war on terror, the AMT gap, and the rest of the spending will give us a whopping budget deficit of $240 billion next year.

If you are wondering just what got decided here, who really won, and what's different, you aren't the only one.

On the health issues:

SCHIP has been extended to March 2008. The Congress and the President have allocated enough money that children now covered will be able to stay in the program. There is some disagreement about whether new CMS rules might result in some cuts but CMS is showing no inclination to force any kids off the plan in an election year.

The bipartisan agreement to expand SCHIP from the current six million kids to ten million by spending another $35 billion ended up being shelved after the President vetoed that deal twice and the Democrats fell about 10 House votes short in their attempts to override him.

The docs did not get their January 10% Medicare fee cuts and instead got a half percent increase.

The bad new for the docs is that they only got a six month reprieve this time--until July 1, 2008. I see no reason to believe the Congress won't again find someplace to get the money it will need to defer the cuts to January 1, 2009.

But on January 1, 2009 the docs will face a whopping 15% cut--the 5% from last year that is funded only until July 1, this year's 5% cut that was also deferred only until July, and a new 5% cut the Sustainable Growth Rate Formula (SGR) will automatically create on January 1, 2009.

The Congress has fixed nothing for the docs, they have only pushed the pending cuts forward by six months--and most likely twelve months until January 1, 2009.

Just before the holiday recess, we thought we had a twelve month doc fix that would have been funded by taking the extra six months money from the "double dip" payments Medicare Advantage plans pay to teaching hospitals. But it wasn't the health plan lobby and conservative Republicans that KO'd that Medicare Advantage cut--it was a powerful Democrat looking to protect his local medical centers.

The big teaching hospitals have always had some of the most powerful allies in Congressional delegations from states like Massachusetts and New York where some of the nation's leading medical centers are based and some of the most powerful Democrats hail from. That was the case this time as the medical centers prevailed on the Chairman of the House Ways and Means Committee, and New York Congressman, Charlie Rangel, to kill that idea.

With the extra money cut by Rangel, and time running out, the only out was to use what money they had for just a six month fix and later try to find more funding by July of 2008.

As a result, the Medicare Advantage (MA) plans suffered no material cuts. It was clear that any real cuts would run into a Bush veto with the same fate as the two SCHIP bill votes. In the Senate, where 60-votes would have been necessary for any bill that contained MA changes, there had already been tacit agreement among Republicans to a one-year doc fix and some MA cuts. The big difference was an intransigent President who wasn't going to budge on this issue and later objections from Rangel.

Because of these agreements, payments to the MA plans should be safe until January 1, 2010 because CMS will have set the 2009 rates by the time the 2009 budget is dealt with later next year.

Does this mean that Medicare Advantage plans have won and will not have to worry about any big cuts?

Hardly. This was a draw.

Bush held the cuts off. Bush is a lame duck. The Democrats are more intent than ever on getting back on this one and cutting the Medicare Advantage "over payments."

George Bush may not have to sign the 2009 budget and therefore be a factor in next year's negotiations. It would be a simple matter for continuing resolutions keep the government going a month longer than they did this year--to inauguration day and a new President in late January.

Late in 2008, the docs will be facing a 15% Medicare fee cut on January 1, 2009, SCHIP will be out of money a few months later on March 1, 2008, the extra payments to Medicare Advantage plans will present the same plump target, and we will know who won the November elections.

I heard someone say recently that with every additional year of the extra Medicare Advantage payments there will be more seniors on the plans and it will be politically more difficult to cut them. That misses an important point--the docs are facing a 15% cut and if they don't get the money from the HMOs they will get it from other providers. AARP, the AMA, the hospitals, and about every other provider organization can agree on just one thing here--get the money from the Medicare HMOs. AARP can rally a lot more seniors than the insurance industry can.

The Medicare physicians held off some big fee cuts for likely another year, the Medicare Advantage HMOs held off any real cuts to their programs but are far from safe going into 2010, and the kids have their health plan until March.

No one won.

It's a "do over."
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