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Republican Conservatives Want Senior Citizens to Pay Most for Katrina

Republican Study Committee targets senior programs for budget cuts

Sept. 22, 2005 – In a stunning announcement yesterday, the Republican Study Committee recommended shifting a big portion of the cost of Hurricane Katrina to the backs of America’s senior citizens. Recommended program cuts impacting seniors include delaying the Medicare Prescription Drug Program, increase Medicare Part B Premium from 25% to 30%, impose a home health co-payment of 10%, reduce Medicaid administrative spending, increase allowable co-pays in Medicaid, block grant Medicaid acute services, base new Federal Retiree Health on length of service, restructure Medicare's cost-sharing requirement and update the formula used for Federal Pension.

Summary of Savings in Title I
(Savings from Baseline, in Millions of Dollars)

The Republican Study Committee, a group of about 100 conservatives, launched "Operation Offset" Wednesday with a proposal that they say will strip the national budget of more than $929 billion, over ten years, of “unnecessary spending.” About $491 billion will be from programs impacting senior citizens.

Most of the attention has been on their proposal for cutting $25 billion of transportation Congressional home district perks, including two bridges in Alaska that will cost $450 million.

The Republican Study Committee its agenda is advancing a conservative social and economic agenda in the House of Representatives. Their Website says it is an independent research arm for Republicans.

Rep. Mike Pence (R-Ind.), chairman, noted at the rally that every offset recommendation was not endorsed by every member present.

Beside senior programs, other cost-cutting targets are many of the programs conservatives have long disliked, such as the Corporation for Public Broadcasting, the foreign-operations budget and the National Endowment for the Arts.

Summary of Total Savings
(Savings from Baseline, in Millions of Dollars)

Following is what their report said on senior programs they want to cut:

Delay the Medicare Prescription Drug Program for One Year

Under current law, the prescription drug benefit becomes effective on January 1, 2006, and OMB has estimated that it will cost as much as $1.2 trillion over the next ten years. Anyone with Medicare Part A or Part B may enroll in the prescription drug plan, and will be eligible for prescription drugs at discounted prices. In light of current budget constraints, it is prudent domestic fiscal policy to delay implementation of the prescription drug benefit for one year while continuing the current drug discount card program. Savings: $30.8 billion over ten years.

Reduce Medicaid Administrative Spending

The federal government currently reimburses states for about 50 percent of the cost of managing their Medicaid programs. Under this option, the federal government would cap the per-enrollee amount that it pays each state for Medicaid administration. This would give states a stronger incentive to improve the efficiency with which they manage their Medicaid programs. Savings: $12.9 billion over ten years ($4.2 billion over five years).

Increase Allowable Co-payments for Medicaid

Although states are allowed a great deal of discretion in designing their Medicaid programs, federal rules have traditionally limited cost-sharing requirements for beneficiaries. This option would raise the federal limits on allowable co-payments in Medicaid--from $3 for adults and zero for children to $5 and $3, respectively. The higher co-payments would apply to outpatient hospital visits, prescription drugs, non-emergency visits to emergency rooms, and visits to physicians and dentists. Increased co-payments would encourage a more cost-conscious use of services by beneficiaries, reducing the number of unnecessary medical services provided. Savings: $7.7 billion over ten years ($2.0 billion over five years).

Block Grant Medicaid and Index for Population and Inflation

The Medicaid program funds coverage for two broadly different types of health care: acute care (including services such as inpatient hospital stays and visits to physicians’ offices, and products such as prescription drugs) and long-term care (services such as nursing home care and home and community-based assistance). The program is financed jointly by the states and the federal government, with the federal government’s share determined as a percentage of overall Medicaid spending. That percentage, referred to as the federal matching rate, can range from a floor of 50 percent to a ceiling of 83 percent, depending on a state’s per capita income. This option would convert the federal share of Medicaid payments for acute care services into a block grant, as 1996 legislation did with funding for welfare programs, that would be increased annually for inflation and state population growth. (Long-term care would continue to be financed using the matching rate.) Funding acute care with a block grant rather than with federal matching payments would strengthen states' incentive to spend money cost-effectively by eliminating the subsidy for each additional dollar spent on health care. Savings: $225 billion over ten years ($44 billion over five years).

Base New Federal Retiree Health Benefits on Length of Service

Federal retirees are generally allowed to continue receiving benefits from the Federal Employees Health Benefits (FEHB) program if they have participated in the program during their last five years of service and are eligible to receive an immediate annuity. More than 80 percent of new retirees elect to continue health benefits. This option would reduce health benefits for new retirees who had relatively short federal careers, although it would preserve their right to participate in the FEHB program. This could make the government’s mix of compensation fairer and more efficient by improving the link between length of service and deferred compensation, and would also help bring federal benefits closer to those of private companies. Savings: $6.3 billion over ten years ($1.6 billion over five years).

Increase Medicare Part B Premium from 25% to 30%

Medicare provides health insurance coverage for physicians’ services and hospital outpatient services through its Supplementary Medical Insurance (SMI) program, or Medicare Part B. Monthly premiums paid by enrollees partially fund SMI benefits; general federal revenues fund the remainder. Initially, the SMI premium was supposed to cover 50 percent of program costs. But that share declined between 1975 and 1983, eventually reaching less than 25 percent. This reform would set the SMI premium equal to 30 percent of the cost of Part B benefits, beginning in 2006. This would reduce Medicare’s costs amid the broader budgetary pressures posed in part by the aging of the baby-boom generation. Savings: $84.8 billion over ten years ($33.5 billion over five years).

Restructure Medicare’s Cost-Sharing Requirements

In the fee-for-service Medicare program—consisting of Part A (Hospital Insurance) and Part B (Supplementary Medical Insurance)—beneficiaries’ cost sharing varies significantly depending on the type of service provided. At the same time, certain Medicare services, such as home health visits and laboratory tests, require no cost sharing. This option would replace the current complicated mix of cost-sharing provisions with a single combined deductible covering all services in Parts A and B of Medicare, a uniform coinsurance rate of 20 percent for amounts above that deductible (including inpatient expenses), and an annual cap on each beneficiary’s total cost-sharing liabilities. This would provide greater protection against catastrophic costs while reducing Medicare’s coverage of more predictable expenses. Savings: $87.5 billion over ten years ($34.2 billion over five years).

Impose a Home Health Co-payment of 10%

Medicare’s spending for home health care dropped during the late 1990s following passage of the Balanced Budget Act of 1997, which introduced a prospective payment system (PPS) for home health services. But the Congressional Budget Office projects that the use of home health services, and the resulting costs to the Medicare program, will grow rapidly over the next 10 years. One reason for the projected rapid growth is that Medicare beneficiaries are not currently required to pay any of the cost of home health services covered by the program. This reform would charge beneficiaries a co-payment amounting to 10 percent of the total cost of each home health “episode”—a 60-day period of services— covered by Medicare, starting on January 1, 2006. This would directly offset a portion of Medicare’s home health outlays and encourage beneficiaries to be cost-conscious in their use of home health services. Savings: $31.5 billion over ten years ($11.8 billion over five years).

Update Formula Used for Federal Pensions from Three Years to Five Years

The government’s major retirement plans for civilian employees, the Federal Employees Retirement System (FERS) and the Civil Service Retirement System (CSRS), provide initial benefits that are based on average salary during an employee’s three consecutive highest-earning years. Switching to a five-year average for new retirees would align federal practices with those in the private sector, which commonly uses five-year averages to calculate a worker’s base pension. Savings: $5.2 billion over ten years ($1.3 billion over five years).

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