Comprehensive Analysis on FY 2008 Budget/Appropriations

On Monday, February 5, 2007, the Bush Administration released it fiscal year (FY) 2008 budget request, calling for significant cuts to many domestic programs, including Medicare and Medicaid. The $2.9 trillion budget requests nearly $700 billion for all security-related spending which includes $275 billion to fund the wars in Iraq and Afghanistan through FY 2008. However, the President’s budget would essentially freeze domestic spending at $376 billion in FY 2008.

FY 2007 Appropriations

Although the release of the President’s budget request marks the beginning of the new Congressional budget/appropriations process, Congress has yet to pass last years’ spending bills. Last week, the House approved a $463 billion overall spending bill for fiscal year (FY) 2007 and the measure is now awaiting Senate consideration, which is expected next week.

Known as a continuing resolution (CR), the bill will fund government spending through September 30, 2007 – the end of the 2007 fiscal year. Prior to adjournment in December, the 109th Congress passed a previous CR or “stop-gap” spending measure through February 15th because agreement could not be achieved on nine of the eleven appropriations bills. The new CR bundles those remaining spending bills together in an “omnibus” package.

Although the CR freezes most spending at FY 2006 levels, Congressional appropriators shifted approximately $10 billion from earmarks and other programs to increase funding for some domestic priorities of the Democratic Party. For example, the National Institutes of Health (NIH) would receive an additional $620 million in FY 2007. Similarly, Veteran Health would receive a $3.6 billion increase and the FDA would receive a $76 million increase from 2006 levels. However, most domestic spending will remain flat from FY 2006 funding levels.

As a result of the pending FY 2007 CR which will freeze most domestic spending levels at FY 2006 levels, the FY 2008 budget numbers below are compared to FY 2006 appropriations, rather than FY 2007.

FY 2008 Budget Request – Education

Of most direct impact to the O&P community, the elimination of “earmarks” this year translated into a loss of a $500,000 grant awarded earlier in the appropriations process for fiscal year 2007 to the American Academy of Orthotists and Prosthetists to fund the fifth year of AAOP’s Project Quantum Leap Initiative. While there is still a small chance that some funding may attainable, it is unlikely to occur in FY 2007.

The President’s budget request includes flat-funding of $106.7 million for the National Institute on Disability and Rehabilitation Research (NIDRR). NIDRR supports disability research, demonstration projects, and related activities for individuals with disabilities.

Assistive Technology would receive an approximate $4 million decrease from FY 2006, as the President requests $26 million FY 2008. The Assistive Technology Act (AT Act) supports grants to States to increase access to and funding for assistive technology devices and services for individuals with disabilities.

FY 2008 Budget Request – Medicare

The Administration’s FY 2008 budget proposes $101 billion in cuts from entitlement spending over the next five years. Calling Medicare’s growth unsustainable, the President’s budget would garner $76 billion of those savings from the Medicare program. However, almost all of the President’s proposals would require legislative action, and it is fairly unlikely that Congress would make many of the dramatic cuts suggested in the budget request.

Provider Reimbursement Cuts

More than half of the $76 billion in Medicare savings in the President’s Budget ($39 billion) would come from reducing scheduled updates to provider payments over the next five years.

The President’s budget would freeze inpatient rehabilitation facility (IRF) and skilled nursing facility (SNF) updates in 2008 and reduce them by 0.65% (the market basket minus 0.65 percentage points) each year after. These proposals would save $1.9 billion and $9.2 billion over five years respectively.

The President’s budget would similarly cut payments to hospitals, outpatient departments, and hospices by 0.65% annually from 2008 to 2012, saving $13.8 billion, $3.3 billion, and $1.1 billion respectively. The budget would also freeze Home Health reimbursement for the next five years followed by 0.65% reduction each year thereafter, saving $9.7 billion over five years.

Beneficiary Premium Increases

President Bush’s budget would also garner significant savings by increasing Medicare Part B and Part D premiums for higher-income beneficiaries. The Medicare Modernization Act of 2003 (MMA) requires that higher-income beneficiaries (individuals with income over $80,000 and couples with income over $160,000) pay a greater portion on their 2007 Part B premiums through annual indexing. The President’s budget would eliminate the annual indexing of thresholds for income-based Part B premiums beginning in 2008, thus requiring those with higher-incomes to pay even more above the standard monthly Part B premium. The President would establish a Part D premium structure similar to the proposed Part B reforms. These provisions would save approximately $10.4 billion over five years.

Other Cost-Savings Provisions

  • The President’s budget would establish a 13-month rental period for power wheelchairs. This provision was rejected as part of the Deficit Reduction Act of 2005 (DRA). (Saves $530 million over five years.)
  • The budget would create a Medicare trigger that would require a 4% across-the-board cut to providers when 45% of Medicare expenditures are being drawn from the general fund, i.e. general revenues comprise more than 45 percent of Medicare expenditures. The MMA required that the President propose a legislative solution if two consecutive Medicare Trustee reports predict such a situation within 7 years.
  • The budget includes a proposal to limit mandamus jurisdiction as a basis for obtaining judicial review of decisions by CMS and clarifying the HHS Secretary’s authority to resolve appeals of Medicare determinations. Mandamus jurisdiction in federal court would be available only to compel federal officers to perform “plainly defined ministerial duties”, that is, to discharge duties that they clearly owe the public by statute.

FY 2008 Budget Request – Medicaid

The President’s FY 2008 budget calls for nearly $25 billion in cuts to the Medicaid program over the next five years. Unfortunately, many of these proposals would reduce the State programs’ ability to provide services to individuals with disabilities, as well as some of the most vulnerable Medicaid recipients.

Legislative Proposals

The President’s budget includes a number of legislative proposals aimed at reducing Medicaid spending over the next five years. These proposals include a “streamlining” of the federal matching rate paid to states for administrative services. Most administrative services are currently matched by the federal government at 50%; however, certain administrative activities requiring highly skilled individuals are reimbursed at higher rates. This “streamlining” of the administrative matching rate at 50% would save approximately $5.3 billion over five years. Similarly, the budget proposes reducing federal Medicaid reimbursement for Targeted Case Management (TCM) services to a standard 50% rather than a higher matching rate for most states, saving an additional $1.2 billion.

Costing the government slightly over $1 billion combined, the President encourages Congress to extend through FY 2008 Transitional Medical Assistance, which allows families to maintain Medicaid eligibility for up to 12 months after increases in income make them ineligible for welfare benefits, as well as the Qualified Individuals Program, which provides premium assistance for Medicare beneficiaries with limited financial resources.

Administrative Proposals

The President’s Budget announces several controversial regulatory Medicaid proposals, including many which have been offered as legislative proposals in the past but have been rejected by Congress to date.

The Administration plans to issue Medicaid regulations aimed at curbing reimbursement for some school-based services, particularly transportation costs for low-income students with disabilities, saving $3.6 billion over five years. There will likely be Congressional efforts to codify allowable Medicaid school-based services, in an attempt to preempt or reverse this extensive regulatory proposal and protect schools from loosing significant Medicaid funding.

The Bush Administration also plans to issue regulations that would narrow the definition of rehabilitative services under the Medicaid rehabilitative services option. Community rehabilitation providers are currently reimbursed for a wide range of services provided to individuals with disabilities under this option. Attempts to reduce the types of allowable services could severely restrict access for these individuals. A similar legislative proposal was offered to Congress during DRA negotiations but was ultimately rejected by lawmakers. This proposal would save $2.3 billion over five years.

FY 2008 Budget Request – National Institutes of Health

Legislation to significantly alter the structure of the National Institutes of Health (NIH) was singed into law earlier this year. This law caps the current number of 27 Institutes and Centers at the NIH as well as establishes a “common fund” for cross-cutting research. Under the President’s budget, the NIH would receive $28.9 billion for FY 2008. This is $341 million more than FY 2006 funding.

The Office of the Director would receive $517 million in FY 2008 under the President’s budget request. This is an increase of $39 million over FY 2006 levels. Some funding under the Office of the Director is intended to be used for trans-Institute research.

The National Institute of Child Health and Human Development would receive $1.265 billion in FY 2008 under the President’s request. That is $1 million more than appropriated in FY 2006. This institute houses the National Center for Medical Rehabilitation Research (NCMRR) which funds a significant orthotics and prosthetics research and development program.

The National Cancer Institute would be funded at $4.782 billion in FY 2008. This is $13 million less than appropriated in FY 2006.

FY 2008 Budget Request – Health Care Initiatives

The President’s Budget also contains many of the same health care proposals previewed in this year’s State of the Union Address. The budget proposes a new “Affordable Choices” grants program with the aim of helping states bring private health insurance within reach of uninsured citizens. These state grant programs would be funded with up to $30 billion in existing health care funds redirected away from other Medicare and Medicaid programs. Under the proposed grants program, states would choose a basic, low-cost health plan to offer its citizens with specific health plans varying from state to state.

The President also proposes a change in the federal tax code that would tax (for the first time) employer-provided health benefits and would offer deductions of $7,500 for individuals and $15,000 for families who have either purchased individual health insurance or are covered under a group plan through their employer. The President has said these revisions would “level the playing field” for individuals not insured through their employer, and for the uninsured, the deduction would free up money for the purchase of private health insurance. However, opponents argue that the President’s plan would shift greater burdens onto the middle and lower-middle classes as their employers have less incentive to provide their employees with health care.

Additionally, the budget encourages the expansion of health savings accounts andassociation health plans. Health savings accounts allow individuals to use pre-taxed dollars in combination with high-deductible health insurance plans to pay for care. Association health plans allow small groups to pool individuals to obtain lower prices but also subvert state insurance laws that protect consumers.

Conclusion

The President’s budget request was not well received by Congressional Democrats earlier this week who blasted the Administration’s proposal as an attempt to balance the budget by cutting programs and services to the most vulnerable populations while generously funding defense programs. However, several Republicans lawmakers praised the President’s budget as a bold step toward balancing the budget.

Following completion of the FY 2007 CR, Congress will begin work on its FY 2008 budget resolution. A budget resolution is not binding and ultimately serves as a blueprint for appropriations work as well as entitlement reform if they decide to include what is known as “reconciliation instructions.” The House is expected to introduce its budget resolution in the next several weeks. Despite criticism of the Bush Administration’s proposal, the FY 2008 Congressional budget is likely to be one of the most austere in recent memory as Democrats struggle with their pledge to return fiscal disciple to Washington in the face of many priorities they would like to fund.

Compiled by Peter W. Thomas, General Counsel to NAAOP, and
Emily A. Niederman, Legislative Director, Powers Pyles Sutter and Verville, P.C

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