Thursday, February 9th, 2006


  • Cuts to Medicaid & Medicare Providers, Impact on Hospitals and Patient
  • Major Expansion of Health Savings Accounts; High-Deductible Plans
  • Also: President Bush Signs Budget Reconciliation Yesterday Cutting Medicaid

Earlier this week, President George W. Bush unveiled his 2007 fiscal year budget proposal, a $2.8 trillion budget that would start October 1, 2006. It features $182 billion in cuts for non-defense programs over five years (a second straight year of proposed reductions), as well as proposals for $285 billion in tax cuts over the same period. The actual budget document is available from the White House website at:

Analyses of the federal budget are available from the California Institute for Federal Policy Research (CIFPR), and the Center on Budget and Policy Priorities (CBPP):

HEALTH CARE: The proposal does make significant cuts to public health care programs, including Medicare (serving seniors and people with disabilities) and Medicaid (Medi-Cal in California , serving low-income children, parents, seniors and people with disabilities). It also seeks major changes in the private healthcare marketplace through tax and policy changes, encouraging high-deductible plans and Health Savings Accounts, and proposing the elimination of state consumer protections for insurance. The U.S. Health and Human Services Department has a summary of its budget on their website, at:

MEDICAID: The Bush budget calls on Congress to “build on the momentum” of the budget reconciliation act that the President signed yesterday. That act provided almost $40 billion in cuts to Medicaid, child care, student loans and other vital services, and was passed the Senate by 51-50 (with Vice President Cheney breaking the tie), and the House just last week by 216-214 (on a strict party line vote for the California Congressional delegation).

  • Allows the state to charge co-pays for Medi-Cal services.
  • Require burdensome documentation (either a birth certificate or a passport, which many legal citizens do not have) for Medi-Cal applicants
  • Make changes in the Medi-Cal assets test, making it harder to get Medi-Cal coverage, or far more expensive for many seniors and people with disabilities.

According to CBPP, the budget proposes legislative changes in Medicaid of $1.5 billion over five years, and regulatory changes that would reduce funding an additional $12.3 billion. Most of these changes are shifting costs to states, which in turn could pressure California to make programmatic changes and cuts. Other changes would:

  • Limit funding to public and safety-net hospitals that now get money through DSH( Disproportionate Share Hospital ) payments to care for low-income and uninsured patients. Other changes would also have unclear and dangerous impacts on hospital financing in general.
  • Reduce the taxes that states can charge providers from six percent to three percent. States use this tax to pull down federal matching funds.
  • Restrict the kinds of services that can be claimed for rehabilitation services
  • Relieves states of paying for prenatal care and preventative pediatric doctor’s visits when an absentee parent, spouse or domestic partner has health insurance that can be tapped.

MEDICARE: Ignoring the drama surrounding the implementation of the Medicare prescription drug benefit, the Bush budget’s largest single cut fell on Medicare. The program is expected to grow by $36 billion less than expected over the next five years. In 2007, that’s a $2.5 billion reduction in services.

The bulk of the Medicare cut won’t directly or immediately impact enrollees. Instead, 55 percent of the cut ($20 billion) would fall on hospitals, skilled nurses, ambulances and other health care providers. The proposal limits how much the federal government would reimburse these providers, meaning that providers would have to absorb higher costs as health inflation increases. The impact of these cuts, however, would eventually trickle down to patients, who would see either the quality of service, or service itself reduced.

Some beneficiaries would also feel a pinch. Currently, single enrollees in with incomes above $80,000 a year ($160,000 for couples) pay about 25 percent of their premiums for physician services. Bush is asking that those enrollees begin paying a higher premium – depending on their income – beginning in 2008. The income threshold does not increase over time with the cost of inflation. That means five years down the line – when more singles are earning $80,000 – enrollees will be asked to pay higher premiums.

These cuts are focused on Medicare Part A (Hospital Coverage) and B (Doctors Visits), the benefits directly provided by the Medicare program directly. They do not impact Medicare Part C or D, which have been contracted to private insurers.

HEALTH SAVINGS ACCOUNTS: Apart from public program cuts, President Bush proposes significant tax and policy changes to encourage people to buy high-deductible plans. To encourage people to store money in so-called Health Savings Accounts, Bush is proposing tax credits and deductions for those who open them. He is also increasing the amount that can be contributed to such plans annually. The amounts accrue annually – like a 401k retirement plan. These HSAs are tax shelters geared mostly for the wealthy, which also have a controversial impact on our health care system.

These HSAs, coupled with high-deductible, minimum-coverage plans, are being billed as an alternative to regular health insurance coverage.

Premiums with these plans are lower than typical health coverage and thus supposedly more appealing to younger and healthier people who might not see a doctor often. They’re also appealing for those who want to feel like they have health insurance, but can’t afford it.

The idea is this: the money that you save in premiums is funneled into the HSA account. Problems with this include

  • Deductibles are high – in the thousands of dollars – so if a medical emergency arises, the consumer will be out a lot of money – possibly more than if they had actual coverage.
  • As with 401ks, consumers will stock away as much money in these accounts as they see fit or can afford. If they’re choosing these plans (or have this type of benefit from an employer), it’s likely they can’t afford to put away much.
  • If a medical need arises, the consumer is often unable shop around for the best and most economical care. These plans ask individual consumers to do what large purchasers like CalPERS have found a real challenge.

The President’s budget also includes other proposals to change the private health care martketplace, including two proposals to eliminate state-based consumer protections. Association Health Plans would allow businesses to purchase insurance products outside of state regulation. Another proposal would simply replace California and other states consumer protection laws with one national set of standards, which would likely to be far less than what California currently has in place.

More information will be forthcoming about both Health Savings Accounts and President Bush’s budget proposals, especially their impact on California hospital, providers, and patients.

For comments and questions, contact Hanh Kim Quach at Health Access,

Health Access California promotes quality, affordable health care for all Californians.
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