Budget makers agree to cut billions in Medicaid spending

By Brian DeBose
Published April 28, 2005

Congressional budget makers agreed to follow a recommendation by the nation's governors and cut at least $8.6 billion in Medicaid spending next year, a rare move because Congress usually is leery of touching entitlement spending programs.

Sen. Judd Gregg, New Hampshire Republican, and Rep. Jim Nussle, Iowa Republican, head of their respective bodies' budget committees, said in a brief bicameral conference meeting yesterday that before a final budget bill is crafted, the proposed $2.6 trillion fiscal year 2006 budget must reflect a commitment to entitlement cuts.

"Our goal will be to pass a bill that addresses the major issues: controlling the growth of entitlement spending, which represents 59 percent of the budget ... controlling the growth in discretionary spending and having reasonable enforcement of our limits," Mr. Gregg said.

President Bush asked Congress to find $20 billion total in all entitlement programs savings this year. But Sen. Gordon H. Smith, Oregon Republican, got legislation passed that creates a bipartisan panel to study reforms and the effects that any cuts would have on the states' ability to provide health services.

House members, concerned about how their constituents will react to any perceived cuts to the nation's primary indigent health care program, seized on the Senate position and this week voted 348-72 to instruct its budget negotiators to support the creation of the commission.

"[Tuesday's] vote was somewhat of a pretense," said House Minority Whip Steny H. Hoyer, Maryland Democrat.

"Watch what they do, not what they say. The rhetoric sounds good, but the Medicaid cuts still are coming.

Virginia Gov. Mark Warner, as chairman of the National Governors Association, crafted a bipartisan reform plan that streamlines administrative costs, including revising payment options and accounting policies. The plan is expected to save about $8.6 billion, according to House budget staff members.

Mr. Hoyer said relying on the governors' plan is a pretty "lame excuse" to ignore the bicameral votes to hold off on any action until the commission study is completed. "I have not spoken to Mark, but [Republicans] have no plan; what they are doing is cutting benefits first and then maybe come up with a plan later," he said.

But Mr. Nussle and Mr. Gregg said they have found comfort in the fact that state governors are behind them.

"The governors have come forward with about $8 billion worth of savings that can be achieved this year," Mr. Nussle said.

Mr. Gregg added that the governors actually were "ahead of [Congress], as they so often are."

Budget talks also have stalled because of the proposed $18 billion presidential request to increase pension premiums paid by the private sector to the Pension Benefit Guaranty Corp. (PBGC), the government-backed pension insurance system that operated at a $23.3 billion deficit last year.

Mr. Gregg wouldn't give specifics on the matter, but said both chambers are expected to reach a consensus on halving the president's request to about $9 billion in increases to the premiums.

All pension plans have to pay a flat premium of $19 per worker annually to the PBGC. Mr. Bush wants to raise that to $30 per worker.

Some fear that raising the premiums that employers pay to insure their pension programs could result in businesses either freezing or eliminating matching funds toward employee retirement.

"Our optimal situation would be not to have any PBGC increases in the budget because we believe it should be part of a comprehensive pension reform, but we would argue that the Senate number is more reasonable than the House version," said Aliya Wong, director of pension policy at the U.S. Chamber of Commerce.

The Senate bill wants a $5.3 billion increase with $2 billion going to the PBGC flat-rate premium. The House bill has a $21 billion increase with $18.1 billion allocated to the fund.

Both chambers are at odds on military and domestic discretionary spending. The Senate wants an $899 billion spending cap; the House calls for an $893 billion cap. Among the sticking points in discretionary domestic spending are which farm subsidies should be cut next year and the funding level for veterans health programs.