BushWatch Main >> 2009 Budget >> Health CareHEALTH CARE PROGRAMS
Standard Deduction for Health Care
Once again, the Bush administration proposes to tax employer-provided health benefits beginning in 2009 to help pay for a new standard deduction for health insurance. The proposed deduction of $15,000 for family coverage ($7,500 for individual coverage) would be available to everyone, other than those covered by Medicare, regardless of whether health insurance is provided by an employer or purchased in the marketplace. The proposal only pretends to address our nation’s health care crisis. The reality is it could just make things worse.
- Workers with good or more costly coverage will pay more in taxes while everyone without coverage gets no real benefit from the proposal. Many individuals without health care coverage either have too little income to buy it or do not benefit from a deduction because they owe little or no income tax. In addition, by providing a standard deduction amount, regardless of the actual cost of the health care coverage, the proposal gives bigger tax breaks for buying high-deductible plans in the deeply flawed individual market.
- Even the administration recognizes the minimal impact of its proposal on the 47 million uninsured Americans. The Treasury Department estimates only about 8 million people would gain coverage, leaving more than 80 percent of those without health care today out in the cold. Even more troubling is the likelihood that some employers will drop coverage since employees will get tax-favored treatment by buying their own coverage in the individual market.
- Not only does the proposal do nothing for those without health care coverage, it threatens those who do have employer coverage.
- The proposed deduction applies to income and payroll taxes and is likely to lower Social Security benefits for millions of middle-class workers.
- The value of the proposed deduction actually decreases over time because it will grow with the Consumer Price Index (CPI). Health care costs, on the other hand, continue to grow two or three times faster than the CPI. When the value of employer-provided health coverage exceeds the amount of the standard deduction, workers will pay more in taxes as the “excess” amount of their health coverage will count as income.
- Last year, the administration estimated that 20 to 25 percent of health care plans or policies would have premiums for family coverage above the standard deduction amount in 2009 with that number increasing to about 40 percent by the tenth year. All of these families will pay higher income taxes under the proposal.
Medicare
Medicare—the federal health insurance program for seniors and people with disabilities—currently provides benefits to almost 44 million Americans. Medicare Part A covers inpatient care, skilled nursing facility care, some home health care and hospice care. Part B (traditional fee-for-service Medicare) covers outpatient care. Part C (Medicare Advantage) gives beneficiaries the option of using managed care plans, such as health maintenance organizations (HMOs) and preferred provider organizations (PPOs) as well as private fee-for-service plans. Part D, the prescription drug benefit added by the Medicare Modernization Act of 2003 (MMA), began in January 2006 with seniors enrolling in private plans that contracted with Medicare to provide coverage.
The FY 2009 budget includes legislative and administrative proposals seeking $12.8 billion in Medicare savings for FY 2009 and almost $183 billion over the five-year period from FY 2009 through FY 2013. These proposals represent more than twice the cuts sought in last year’s budget.
Premium Increases for Medicare Beneficiaries
The 2009 Bush proposal repeats the 2008 proposal to increase Medicare premiums:
- Medicare beneficiaries now pay an additional Part B premium based on income (the income thresholds for 2008 are $82,000 for single beneficiaries and $164,000 for couples). Under current law, the income threshold rises with the Consumer Price Index. The Bush budget proposes to eliminate this indexing so more seniors would pay higher Part B premiums.
- In addition, the administration proposes to introduce the same income-based premium for prescription drugs under Part D.
Taken together these new Medicare premium increases will cost older Americans a total of $5.75 billion in 2009 through 2013 as well as erode the social insurance underpinnings of Medicare.
Reductions in Payments to Medicare Providers
- To be sure, the vast majority of the proposed Medicare reductions—$12.15 billion in FY 2009 and more than $170 billion in the five years ending in FY 2013—come from reduced payments to Medicare providers. But, these cuts merely shift costs to other health care payers, including employer-provided health care plans, and like the administration’s standard deduction for health insurance, the proposed Medicare reductions do not address the real problem—the continued growth of health care costs.
- The budget also seeks to automatically trigger 0.4 percent reductions in all Medicare provider reimbursements when 45 percent of Medicare funding comes from general revenues. This proposal, like the elimination of Part B premium indexing and the introduction of an income-based Part D premium, seeks to change provisions agreed upon in the MMA in 2003. Under the MMA, if the Medicare trustees report in two consecutive years that general revenues are expected to fund 45 percent or more of Medicare costs within seven years, the President must submit legislation to address the shortfall. Congress is to consider the proposed legislation on an expedited basis. The administration wants its designated cuts to be automatic without consulting Congress.
2009 Budget Again Ignores Overpayments to Medicare Advantage Plans
- While the administration wants seniors to pay more and providers participating in the traditional Medicare program to receive less, the proposed budget ignores the biggest special interest subsidy Medicare provides—overpayments to Medicare Advantage plans. These overpayments, which the Congressional Budget Office estimated to be more than $50 billion between 2009 and 2012 and nearly $149 billion for 2009 through 2017, cost taxpayers and beneficiaries more while forcing traditional Medicare—the plan overwhelmingly chosen by Medicare beneficiaries—to compete on an uneven playing field with private plans.
Medicaid
The administration proposes cuts to Medicaid amounting to $18.1 billion during the five fiscal years 2009 through 2013 and $46.7 billion over the 10-year budget window (2009-2018). Of these amounts, legislative changes account for $17.4 billion and regulatory changes account for $.9 billion over the five-year period.
Medicaid is administered and financed jointly by the federal government and states, with the federal government matching from 50 percent to 76 percent (depending on the state) of the costs states incur in purchasing health and long-term care services for eligible low-income people. The federal government can reduce its Medicaid spending in two ways. One method is to achieve efficiencies in purchasing services for beneficiaries. For example, increasing the rebate drug manufacturers are required to pay for prescriptions Medicaid covers will reduce both federal and state costs. Another approach is to limit the federal matching of state Medicaid expenditures, thereby shifting costs to states. Almost 60 percent of the administration’s proposed budget savings would be achieved by simply shifting Medicaid costs to the states.
The single largest Medicaid cut proposed is to lower the federal matching rate for all administrative costs to 50 percent, which would reduce spending by $5.5 billion over five years. This proposed cut comes at a time when state workloads have been increased by recent federal mandates, including some responsibility for administration of the low-income subsidies under the Medicare drug benefit, documentation of citizenship for most Medicaid applicants and enrollees, and implementation of new program integrity initiatives.
State Children’s Health Insurance Program (SCHIP)
The administration’s budget proposes a net increase of $19.7 billion over five years for reauthorization of the State Children’s Health Insurance Program (SCHIP). However, according to the Center on Budget and Policy Priorities, the proposed funding level is likely to be at least $1.8 billion less than what states need to maintain their programs for the five-year period beginning in 2009 and ending in 2013.[1]
Clearly, the Bush budget does not allow for any expansion of SCHIP so that some of the 6 million uninsured children already eligible for SCHIP or Medicaidcoverage could enroll. Instead, the administration’s budget continues the administration’s ongoing efforts to “refocus” SCHIP on children and pregnant women at or below 200 percent of poverty.
The budget proposes to tighten the restrictions on SCHIP eligibility first announced last year. Under its August 2007 directive, the Bush Administrationset new strict requirements for states covering children in families withincomes above 250 percent of poverty, including enrolling 95 percent of children eligible for Medicaid or SCHIP and demonstrating that employer coverage for low-income children had not dropped more than 2 percent. Thesenew requirements are so restrictive that states are not likely to meet them.[2] The new proposal now tightens the rules further by preventing states from expanding SCHIP coverage to children above 200 percent and less than 250 percent of the federal poverty level and states already covering these children would receive lower federal matching funds. In addition, new restrictions on determining income will also apply, further limiting the number of children whocould be eligible for SCHIP.[3]
