AMNews: June 18, 2001. Tax cut, slimmer surplus jeopardize health initiatives ... American Medical News

Tax cut, slimmer surplus jeopardize health initiatives

Tighter budget limits may constrict funding for measures to reduce the number of uninsured and provide a Medicare prescription drug benefit.

By Amy Snow Landa, AMNews staff. June 18, 2001. Additional information

Washington -- The Bush administration and members of Congress on both sides of the aisle say they want to pass legislation this year to reduce the number of uninsured Americans and establish a Medicare outpatient drug benefit.

As evidence, they point to this year's nonbinding budget resolution, which earmarked significant funds for health care spending: $300 billion over 10 years for a Medicare prescription drug benefit and about $100 billion to expand health insurance coverage for the uninsured.

But Congress and the president are facing tighter budget constraints than they did earlier in the year, now that Congress has passed Bush's $1.35 billion tax-cut package and the Congressional Budget Office has dramatically reduced its estimate of the budget surplus. The combination of those factors could endanger Congress' and Bush's much-touted health initiatives.

"There is a day of reckoning ahead as Congress realizes the tax cut is going to put a squeeze on health care spending," says Bob Doherty, senior vice president for governmental affairs and public policy for the American College of Physicians--American Society of Internal Medicine. "But it's too early to put up the white flag of surrender" on a drug benefit or the uninsured, he said.

Still, there does not appear to be much of a cushion left for spending beyond the levels provided in the budget resolution, which is likely to make it more difficult to achieve agreements on big-ticket items like a prescription drug benefit and health coverage expansion.

Even the health care spending levels set under the budget resolution may be vulnerable to competing priorities this year.

Tax cut taps funds for uninsured

About half of the $100 billion the budget resolution earmarked to expand health coverage for the uninsured already has been used to pay for Bush's broad tax-cut package, according to both Democratic and Republican congressional aides.

"A little more than half was spent through the tax bill for non-health care items," said a Republican aide. "So that leaves $48 billion and change" for budget resolution plans.

A prescription drug benefit for all Medicare beneficiaries could cost as much as $1 trillion over a 10 year period.

The budget resolution set aside $71.5 billion for the president's proposal to provide tax credits for the purchase of health insurance and about $28 billion for other health coverage initiatives, including public program expansions.

The $48 billion that remains after the tax cut could be used either for tax credits or to expand public health insurance programs, or both, said the Republican aide. "Even at $50 billion, it's a very serious chunk of money to be allocated toward the uninsured."

The administration and congressional Republicans are backing the two-pronged approach that couples health insurance tax credits with public program expansions.

Bush's health insurance tax-credit proposal would provide refundable credits of up to $1,000 for individuals to purchase health coverage, and up to $2,000 for families.

But there is little enthusiasm for health insurance tax credits among most Democrats.

In the Senate, Majority Leader Tom Daschle (D, S.D.) and Sen. Edward Kennedy (D, Mass.) have dismissed the tax-credit approach as an "inefficient" approach to reducing the number of uninsured.

Kennedy, who now chairs the Senate Health, Education, Labor and Pensions Committee, is planning to reintroduce his Family Care Act, which would extend health coverage to the parents of children who are eligible for the State Children's Health Insurance Program. The measure would probably cost about $50 billion over 10 years, say supporters.

A co-sponsor of the Family Care Act, Sen. Max Baucus (D, Mont.), now chairs the Senate Finance Committee, which also has jurisdiction over legislation to address the uninsured issue.

Reducing the number of uninsured "is an important issue for Sen. Baucus, as Montana ranks eighth among states for the highest rates of uninsured in the population," said Elizabeth Fowler, PhD, chief counsel for health care and entitlements for the committee's Democratic majority. "We would like to see a bill move in that area."

While Baucus is "willing to look at" Bush's tax-credit approach, he shares the concerns of other Democrats about the proposal and believes that public programs can play a more effective role in expanding health coverage, she said.

Drug benefit may exceed estimates

Congress is also likely to face difficulties in agreeing on the size and scope of a Medicare prescription drug benefit this year.

The cost of providing a prescription drug benefit for all Medicare beneficiaries is likely to exceed the amount -- $300 billion over 10 years -- that is called for under this year's budget resolution, and could even run as high as $1 trillion, according to some estimates.

The CBO already has projected that spending by or for Medicare beneficiaries on prescription drugs will total $104 billion in 2004 -- the first year in which Medicare could probably begin to implement a new benefit.

But some cast aside doubts about the benefit's cost.

Republicans "think the $300 billion ... is more than enough to provide an adequate drug benefit" within the context of Medicare reform, said John McManus, an aide to House Ways and Means health subcommittee Chair Nancy Johnson (R, Conn.).

The CBO is expected to issue cost estimates shortly on the competing drug-benefit proposals before Congress, and the Senate Finance Committee plans to vote in July.

In considering extra spending beyond levels in the budget resolution, Congress is limited by its pledge not to dip into the Medicare Hospital Insurance Trust Fund surplus. This year's budget resolution prohibits Congress from extra spending -- on prescription drugs or any other item -- that would cut the level of the Medicare trust fund surplus.

ADDITIONAL INFORMATION:

Money crunch

President Bush's recently passed tax cut and a shrinking estimate of the budget surplus could spell trouble for health care initiatives included in the congressional budget resolution. Among the endangered items:

Health insurance tax credits The budget resolution seeks $71.5 billion.
Federal health program expansions The budget resolution seeks $28 billion.
Medicare prescription drug benefit The budget resolution seeks $300 billion.

GOVERNMENT & MEDICINE