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Medicaid Reform Update: Budget Resolution Slated to Cut Medicaid

To: National Association for the Advancement of Orthotics and Prosthetics

From: Peter W. Thomas, Dustin W.C. May

Date: April 5, 2004

Re: Medicaid Reform Update: Budget Resolution Slated to Cut Medicaid

The past several weeks have been very busy in Congress as lawmakers are wrestling with attempts to reduce overall funding to entitlement programs in the FY 2005 Congressional Budget, particularly Medicaid. The Senate recently approved an amendment that removed $11 billion in cuts to Medicaid. This week, however, the House of Representatives is slated to consider its version of the budget, which would cut $2.2 billion from Medicaid over 5 years. As the competing budget resolutions head toward a conference committee, Congress appears likely to approve some form of Medicaid cuts, assuming a final budget resolution is approved.

The annual Congressional budget resolution sets spending priorities for Congress and provides Congressional committees with “reconciliation” instructions on funding levels for various programs, including entitlements like Social Security, Medicare, and Medicaid. While the reconciliation instructions are non-binding, committees often comply with the instructions by passing legislation that concurs or “reconciles” with the budget resolution. Legislation that would spend federal funds in excess of the Congressionally-approved budget resolution is subject to additional procedural hurdles and is unlikely to pass.

This year, the budget resolution is shaping up to include a modest amount of tax cuts, approximately $100 billion over 5 years, and spending increases on other priority programs, such as defense. As a result, both the House and Senate Budget Committees are recommending cuts to entitlement programs over the next 5 years in order to offset the new spending.

Amidst the budget debate are increasing concerns over “waste, fraud, and abuse” in the Medicaid program. President Bush’s FY 2005 budget also highlighted several quasi-legal Medicaid funding streams that states have used to secure federal Medicaid matching funds, such as use of Intergovernmental Transfers and the Upper Payment Limit. These Medicaid payment issues, which have been the subject of debate in Congress for several years, combined with a desire not to initiate cuts to popular entitlements like Medicare and Social Security, leave lawmakers with an attractive alternative to reducing entitlement spending in an election year.

The Senate originally crafted a budget resolution that would have effectively cut approximately $11 billion from Medicaid over the next 5 years. However, many Governors, Medicaid providers and consumers expressed fear that reductions in federal Medicaid contributions would only exacerbate the number of uninsured persons and increase state health care deficits.

Ranking Member of the Senate Finance Committee, Senator Max Baucus (D-MT), countered the Budget Committee’s instructions on the Senate floor with an amendment that stopped $11 billion in Medicaid cuts. The amendment was passed in the Senate by a 53 to 43 margin, collecting 8 Republican votes. The success of the amendment is largely attributable to efforts of groups like NAAOP. NAAOP was very active in supporting the Baucus amendment and signed onto a letter sponsored by FamiliesUSA.

Senator John D. Rockefeller (D-WV) sponsored a different amendment that would have set aside special funding to continue the state fiscal relief (FMAP) originally passed in the 2003 tax bill. His amendment, however, was ruled out of order on procedural grounds. Early Friday, March 12, the Senate passed its $2.4 trillion budget package by a final vote of 51-45.

The House begins consideration of the FY 2005 budget resolution on the floor the week of March 22. Last week the House Budget Committee approved, on a party-line vote, a budget that purports to cut $2.2 billion from Medicaid and other entitlement programs. The House budget resolution’s cuts, which had originally been forecast to cut $13 billion from Medicaid, appear to have been mollified due to pressure from many House Republicans and interest group efforts. Nevertheless, the budget still contains $2.2 billion in cuts and is expected to pass the House by the end of this week.

Attempts by lawmakers to carry the Senate’s pro-Medicaid momentum and strip the Medicaid cuts on the floor will be difficult to sustain with House rules likely to limit consideration of a Medicaid restoration amendment.

Medicaid appears to be a safe target for cuts this year as Congress tackles a looming budget deficit and crafts an election-year tax package. NAAOP continues to work diligently to stave off cuts to Medicaid as the budget resolution continues to work through Congress and moves toward an eventual conference committee. As states continue to have additional fiscal pressure to cut Medicaid funding and the federal government continues to cut Medicaid in light of “waste, fraud, and abuse,” providers will continue to face fiscal challenges.

We will keep you updated on events on the budget and on Medicaid in the future.

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