Senate Passes Plan to Cut $35 Billion From Deficit

By Jonathan Weisman
Washington Post Staff Writer
Friday, November 4, 2005

The Senate approved sweeping deficit-reduction legislation last night that would save about $35 billion over the next five years by cutting federal spending on prescription drugs, agriculture supports and student loans, while clamping down on fraud in the Medicaid program.

The measure would also open Alaska's Arctic National Wildlife Refuge to oil drilling, a long-sought goal of the oil industry that took a major step forward after years of political struggle. A bipartisan effort to strip the drilling provision narrowly failed.

The Senate bill, which passed 52 to 47, is the first in nearly a decade to tackle the growth of entitlement spending, the part of the federal budget that rises automatically based on set formulas and population changes.

It would shave payments to some farmers by 2.5 percent, while eliminating a major cotton support program and trimming agriculture conservation spending. A proposal to limit payments to rich farmers failed yesterday. The measure passed largely along party lines, with only two Democrats voting for it and five Republicans voting against it.

Yesterday's action is part of an effort by congressional Republicans to demonstrate fiscal discipline after widespread complaints of profligate spending on Capitol Hill. Although many Democrats and some moderate Republicans are concerned that the effort may go too far, prominent Republicans in the Senate and House said the cuts were necessary to slow the rate of spending and control a deficit projected to total $314 billion by the end of the fiscal year.

During a speech yesterday to a Heritage Foundation group, former House majority leader Tom DeLay (R-Tex.) repeatedly apologized for excessive spending by Congress, including recent highway legislation that was loaded with lawmakers' pet projects. After noting that House Republicans have voted to cut taxes ever year since winning the majority in 1994, DeLay acknowledged, "Our record on spending has not been as consistent, unfortunately."

The Senate bill would raise billions of dollars by auctioning off parts of the broadcasting spectrum for digital television. It would raise $2.5 billion through leasing parts of the Alaskan refuge to oil and gas interests. Companies with traditional pension plans would be charged higher premiums for insurance coverage under the Pension Benefit Guaranty Corp. And the profits of student lenders would be squeezed by $9.7 billion over five years.

Some of the savings would be spent on relief for Katrina survivors and higher payments to health care providers helping Medicare patients.

The focus now shifts to the House, where the Budget Committee voted 21 to 16 yesterday to approve a more extensive bill saving nearly $54 billion through 2010 with cuts to Medicaid, food stamps, student loans, agriculture subsidies and child support enforcement. The House measure would allow states to impose premiums and co-payments on poor Medicaid recipients for the first time.

With so many controversial provisions, the House measure is forcing Republican leaders to scramble for support in what could be the most difficult vote of the year. Some Republican moderates are balking at cuts to anti-poverty programs, especially in light of a $70 billion tax cut that could come to a vote soon after the budget bill, more than wiping out the first bill's deficit reduction.

Other Republicans usually in the leadership's camp are protesting measures with regional implications, such as a provision that would end a moratorium on offshore oil drilling and another that would halt the practice of sending some import duties to companies impacted by unfair trade practices. And environmentalists are making a last stand to keep oil exploration out of the Arctic refuge.

"There are a dozen issues, any one of which could break this deal," said Rep. Adam Putnam (R-Fla.), a budget committee member. "This is going to be a heavy lift."

Among the deepest cuts are those hitting Medicare and Medicaid. The House bill would cut the growth of Medicaid by $12 billion over five years and by nearly $48 billion over the next decade, according to the nonpartisan Congressional Budget Office. The Senate would trim spending on Medicaid and the related Children's Health Insurance Program by $4.3 billion through 2010, and $14 billion through 2015. The Senate measure mitigates cuts to health care programs for the poor by shifting the bulk of cost savings to Medicare, which would be cut by $5.7 billion over five years. That savings would balloon to $40.6 billion through 2015.

Even liberal advocacy groups say the Senate measure largely shields Medicare and Medicaid beneficiaries, imposing the burden instead on pharmaceutical companies, private insurers and more-affluent Americans who fraudulently qualify for nursing-home coverage by transferring assets to family members. But the Senate Medicare provisions have prompted a veto threat from the White House, which has strongly objected to the bill's tampering with President Bush's Medicare prescription drug benefit.

The Senate bill would save $36 billion over the next decade by eliminating financial incentives to lure managed care companies into Medicare. The White House called those enticements "critical."

"If a final bill is presented to the President that limits the choices of seniors, takes away their prescription drug coverage, or cuts the Stabilization Fund . . . , the President's senior advisors will recommend that he veto the bill," a White House statement said.

Senate Budget Committee Chairman Judd Gregg (R-N.H.) dismissed the threat last night as "absurd."

The House's Medicaid cuts present a far more immediate political obstacle. By allowing states to impose new co-payments and premiums while scaling back some benefits, the legislation is expected to save more than $30 billion over 10 years, the CBO said, not because cost-sharing would bring in revenue but because new costs would keep the poor out of the health care system.

House Energy and Commerce Committee Chairman Joe Barton (R-Tex.) has staunchly defended the cuts as the tough medicine needed to save a program already suffering from draconian cutbacks in some states. The House measure, he said, would grant states more flexibility to tailor Medicaid coverage to their needs while inducing Medicaid recipients to use the health care system more wisely by imposing some modest costs on them.

"It is perplexing that so many who say they care the most want to do the least. If you want Medicaid patients to lose health care, the best thing to do is nothing," he said.

Still, some health care experts say new premiums and co-payments that would be imposed on the working poor would drive millions of families out of the Medicaid system entirely.

"From a beneficiary's perspective, [the changes] are hugely significant," said Jocelyn Guyer, senior program director at Georgetown University's Center for Children and Families, who estimated that 6 million children will be affected by the changes.

Under the House plan, states could raise co-payments for Medicaid recipients below the poverty line from $3 to $5 per doctor's visit or prescription, then keep raising them with the medical inflation rate. For the working poor just above the poverty line, there would be no limit to higher co-payments, although out-of-pocket health costs are not supposed to exceed 5 percent of a family's income. Health policy analysts say that protection may not amount to much as poor families will have difficulty tracking health care expenses that closely.

For the first time, poor children and pregnant women -- currently shielded from any out-of-pocket payments -- could be billed for some medications or hospital visits for non-emergency care.

© 2005 The Washington Post Company