The Senate Finance Committee has passed legislation designed to cut $10 billion over five years from Medicaid and Medicare programs. The vote was along party lines, with Republicans in favor and Democrats against the cuts.
The changes, which now have to be considered by the Senate Budget Committee and then the full Senate before passing on to the House, would reduce reimbursement to physicians for drugs dispensed ($6.4 billion), increase funding to incent health plans to participate in medicare programs (no $ figures provided) , and require pharmaceutical manufacturers to increase the rebates paid to the federal government by $1.4 billion.
Additional funds would be set aside for Katrina victims’ health care.
The House is considering a package that would cut $11 billion from Medicaid alone, even after adding $2.5 billion for Medicaid services for Katrina victims.
What will result is likely to be some cuts in Medicaid and Medicare, as well as the potential for increased costs for wealthier Medicare eligibles.
The last would have seemed highly unlikely jsut a few months ago, but the Republican base is outraged by the lack of financial discipline it perceives on the part of Republican leadership. The Washington Times notes:” Sen. John McCain (R-Ariz.), one of the group’s leaders, said, “I am totally confident that the Republican base is upset and angry about the fiscal indiscipline that we practiced here in the Congress and the mortgaging of our children and our grandchildren’s futures”
What does this mean for you?
Tweaking around the edges of Medicare and Medicaid will do nothing to address the underlying cost drivers, so the problem persists…

WalMart has introduced a health insurance program that is more affordable for its 1.2 million workers. In what appears to be at least partially in response to criticism from regulators, consumer affairs and labor advocates, and reports in the media, the plan provides coverage for as little as $11 a month (individual premium contribution) for a $1000 deductible program.
Fewer than half of Wal-mart’s workers are presently covered by their health insurance; the company’s major competitor, Costco, not only pays workers significantly higher wages and also succeeds in covering more than 80% of them.
According to the New York Times;
“Wal-Mart said that under the plan, monthly premiums would cost between 40 percent and 60 percent less than those for any existing Wal-Mart insurance policy, and that individuals could visit a doctor three times before paying a deductible, an arrangement aimed at encouraging workers to seek preventive care. In the past, workers have had to pay a deductible before their insurance kicked in.
Those who participate will pay a $1,000 deductible, the maximum under Wal-Mart’s insurance for 2005. Monthly premiums will be, on average, less than $25 for an individual, $37 for a single parent and $65 for a family. The $11 premium, for individuals, will be available in a handful of areas, Mr. Fogleman said.
But the plan is unlikely to cover a complicated illness or expensive hospital stay during the first year, when there is a $25,000 insurance cap. (The cap is lifted for the second year.) Out-of-pocket payments range from $300 for prescriptions to $1,000 for hospital stays.”
Critics note that older workers will not be as well-served under the plan than younger healthier workers.
I would note that Wal-Mart’s decision to provide cheaper, well-designed coverage deserves commendation. They will likely face criticism from the equity markets and some analysts, and others will complain, noting Wal-Mart’s long delay in providing affordable health care or question the plan design. Regardless, the company has put together a good program at an affordable price.
Kudos to Wal-Mart.
What does this mean for you?
For taxpayers in Florida and other states where large numbers of Wal-mart employees are covered under Medicaid, potential relief from the added tax burden. For other large employers with low-paid workers, more push to provide health care.

Just when I started thinking I may be getting into too much detail in some of my blog posts, I read Matthew Holt’s latest on consumer-directed health plans, and some of the following comments from everyone on the entire political and ideological spectrum. Boy, am i superficial.
Net – I agree w Matthew – the folks who believe consumer directed health care will significantly effect overall health care costs also believe in the Easter Bunny.
The Easter bunny solves their problem (sweet tooth) without any harm or cost to them. CDHPs do the same, by making consumers better decision makers about their health care without addressing the fundamental underlying causes of health care inflation. Simple solutions for simple minds.
For the bazillionth time, the people who spend the most on health care, and drive health care inflation, will blow through their deductibles and copays faster than a detailer can pitch an ED drug. Sure, the rest of us are going to pinch pennies, including the poor elderly who may skip taking their hypertension drugs every other day to save money. But we don’t drive up health care costs – sick people do.
It is truly scary when ideologues get involved in things about which they know nothing – like the advocates of CDHP.

Another insightful view of the debacle at GM and Ford is offered up the The Economist, (subscription may be required) which notes:
“GM says that $1,500 of the price of every new vehicle it sells goes towards health care for past and present employees. The firm’s commitments are shockingly vast. It pays the health insurance of some 1m retirees and their dependants as well as its current 200,000 American workers and their families. The deal with the UAW will provide some respite. Though not all details of the deal have been disclosed, the carmaker said it would result in a cash saving of $1 billion a year and would slice $15 billion off the firm’s health liabilities towards its pensioners.
(Details of the health care deal emerged yesterday, indicating that for the first time GM employees and retirees would have to pay part of their monthly premiums, along with deductibles and hospital co-pays)
Rick Wagoner, the chief executive, called it “the single biggest cost reduction in a single day in the history of GM”, though these cuts alone seem unlikely to be enough. Analysts’ estimates of GM’s unfunded obligations (before the cuts) are around the $70 billion mark, most of them in relation to retirees’ health costs. And the firm has promised to fund a new plan for employees affected by the cuts, costing $3 billion, delivered in three instalments beginning in 2006. So it still has a mountain of cost-cutting to climb

The Senate is progressing rapidly on a plan to reduce Federal spending, with potentially significant effects on Medicare and Medicaid. Although Sen. Grassley (R-IA)’s efforts appear to be somewhat short of the support needed to pass, there is an air of expectation that compromise will result in something significant happening soon.
According to BusinessWeek, there are significant differences even among Republicans, with conservatives including Kyl (R-AZ) favoring maintaining the $7 billion funding to encourage pharmaceutical firms’ participation in the Medicare Part D program (not what one would typically think of as a fiscally conservative stance). More moderate GOP Senators led by Snowe (R -ME), appear to be more concerned with not cutting Medicaid and Medicare, which are targeted for reductions of $10 billion in the draft legislation.
Among the key provisions of the legislation as of yesterday were:
– a 1% increase in physician reimbursement (instead of the 4.3% decrease slated to go into effect on 1/1/06)
– increase in funding of $1.8 billion for Katrina-related expense for several affected states
– allow families with incomes up to 300% of the poverty level to buy into Medicaid for disabled children
The rock and hard place dilemma continues, with senators attempting to cut expenditures while funding Katrina efforts, the new Part D program and increase physician reimbursement. How that will pan out is anyone’s guess. The National Governors’ Association is working hard to prevent any cuts in Medicaid, the Senate is somewhat ambivalent, while the House Republican leadership has committed to cuts of $50 billion in the overall budget despite the reluctance of several committee heads and numerous Representatives to sign on to what could be politically dangerous.
Polls indicate respondents (by a significant majority) are not in favor of cutting governmental health programs.
Meanwhile, Florida has been issued approval by HHS to make significant changes to the State’s Medicaid program. In brief, the changes include a significantly greater role for managed care entities; authorization for participating health plans to vary the plan of benefits; and the ability for recipients to “opt out” and receive subsidies to buy insurance on their own.
Driven by annual Medicaid cost increases averaging 13% over the last six years while state revenues were growing 6%, the waiver changes the basis for funding from a “defined benefit” to a “defined contribution”. The federal government’s contributions will be based not on what is needed to cover the expenses of a pre-defined set of benefits, but on an amount agreed upon by the State and HHS.
This is a big change.
What does this mean for you?
As goes HHS, so goes the rest of the commercial world. There will be impacts on cost-shifting, provider reimbursement levels, and uninsurance rates.