December 21, 2005

A $40 billion budget reduction bill that narrowly passed the House is drawing strong criticism from Democrats and senior groups, who contend the legislation spared drug manufacturers from higher costs at the expense of Medicaid and Medicare beneficiaries.

Crafted by House and Senate conferees over the weekend, the budget-cutting agreement would reduce spending on federal healthcare programs by roughly $11.2 billion over five years. The bill, which was approved by the House in a 212-206 vote, is now before the Senate.

The final reconciliation language angered Democrats and the AARP, which said lawmakers backed out of earlier proposals calling for pharmaceutical companies to bear much of the cost burden for the Medicaid cuts. The original Senate bill proposed establishing higher rebate payments for drugmakers to help lower federal Medicaid spending, but that language was stripped out in conference and replaced with House language calling for the funds to be extracted from beneficiaries.

Under the final reconciliation package, which would cut Medicaid spending by $4.8 billion over five years, certain Medicaid beneficiaries would face new premiums, and co-payments of between 10 and 20 percent of the cost of care. These costs would be capped at 5 percent of the individual's family income.

Rep. Joe Barton (R-Texas), the chief architect of the Medicaid provisions, said the higher co-payments were necessary to "encourage personal responsibility" among low-income beneficiaries.

The AARP, however, slammed the agreement, saying it didn't represent a fair compromise. "This budget reconciliation conference agreement systematically undermines the critical protections built into both the Medicaid and Medicare programs," the AARP said recently. "Instead of asking for shared sacrifice to achieve budgetary savings, this agreement hands an early Christmas gift to the pharmaceutical and managed care industries at the expense of beneficiaries."

Sen. Edward Kennedy (D-Mass.) offered similar comments yesterday, saying the conference agreement represents "a massive giveaway to the drug industry" and was a "midnight deal done in a back room of the Capitol."

In addition to the Medicaid cuts, the reconciliation bill calls for $6.4 billion in net savings from Medicare by increasing payments to insurers that cover sicker patients and lowering payments to those covering healthier patients. The bill also calls for Medicare beneficiaries' premiums for coverage of doctors' visits to increase by approximately $2.30 a month beginning in 2007.

Lawmakers expect a very close vote in the Senate on the spending bill, possibly a 50-50 tie. The original Senate bill passed in October in a 52-47 vote. The White House confirmed yesterday that Vice President Dick Cheney cut short a Middle East trip to return to Washington in case he is needed to cast the tie-breaking vote.

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