2007 Budget Favors Defense
Medicare Takes Biggest Hit in $2.7 Trillion Plan

By Amy Goldstein
Washington Post Staff Writer
Sunday, February 5, 2006

President Bush plans to propose a $2.7 trillion budget tomorrow that would shrink most parts of the government unrelated to the nation's security while slowing spending on Medicare by $36 billion during the next five years, according to White House documents.

The spending plan Bush is to recommend to Congress will call for the elimination or reduction of 141 programs -- for a savings of $14.5 billion -- across a broad swath of federal agencies, according to administration and congressional officials who have had access to budget documents in advance. Wide-ranging as they are, those cuts pale in comparison with the White House's attempt to carve money from Medicare -- the first tangible result from a vow the president made in his State of the Union address last week to constrain the massive entitlement programs for the elderly and the poor.

Overall, the budget for the 2007 fiscal year would further reshape the government in the way the administration has been striving to during the past half-decade: building up military capacity and defenses against terrorist threats on U.S. soil, while restraining expenditures on many domestic areas, from education programs to train service.

For the second consecutive year, the White House will ask for an outright reduction in the "discretionary" part of the budget -- the portion that is determined year to year -- apart from the Pentagon and homeland security. According to one congressional source, White House officials plan to emphasize their frugality in discretionary spending, as they propose to cut it more deeply than Congress just did in the budget for the current fiscal year that was approved last week.

Bush foreshadowed his intentions in the State of the Union speech, saying, "Every year of my presidency, we've reduced the growth of nonsecurity discretionary spending. . . . This year, my budget will cut it again."

Spending for the departments of Commerce, Education, Energy and Interior, in particular, will be flat or decreased.

In contrast, the president plans to recommend for the Department of Homeland Security an increase of at least 5 percent from this year's funding of $30.8 billion, not counting emergency spending to recover from last year's hurricanes in the Gulf Coast region, congressional aides said. The White House also has decided to try again to increase passengers' security fees for air travel from $2.50 per flight for nonstop travelers to $5 -- a proposal that Congress swiftly rejected last year.

Similarly, the budget will contain an increase of nearly 5 percent in the Pentagon's funding for next year, defense officials said. The $439.3 billion includes $84.2 billion for weapons systems, an 8 percent increase in weapons spending. The military budget reflects a subtle shift in Pentagon spending priorities from existing weapons toward research and development.

In addition, the White House is continuing a pattern of leaving substantial military expenditures out of the budget; last week, the Pentagon announced it intends to ask Congress for an additional $120 billion -- not contained in the new spending plan -- to help pay for the wars in Afghanistan and Iraq this year and next.

In another area of emphasis, Bush will include $5.9 billion in the budget for what he is calling an "American Competitiveness Initiative," unveiled in the State of the Union speech. The bulk of the money, $4.6 billion, would be used to resurrect a research and development tax credit for industry that expired last year. The rest would go for such initiatives as increasing research in physical sciences, and training more teachers in math and science.

As the White House lavishes attention on those aspects of science, the budget at the same time will bring tough new fiscal realities to the National Institutes of Health, where spending overall essentially would be frozen at the current level next year after a 50 percent increase during the last few years. Some parts of the Bethesda-based biomedical research complex actually would lose money, because the administration is placing priority on research into infectious diseases at a time of fear about bioterrorism and a possible bird flu pandemic.

In total, the administration plans to assert that the new budget would keep the government on a path to reduce the federal deficit by half between 2005 and 2009. In part, the spending plan tries to achieve that goal by renewing efforts to persuade Congress to trim or abolish programs that lawmakers have refused to touch in the past. In last year's budget, Bush took aim at 154 such programs worth a total of $15.8 billion in savings; Congress agreed to about $6.5 billion of those cuts.

Yesterday, a spokesman for the Office of Management and Budget would not comment on the 2007 budget before its release by the White House tomorrow morning.

The effort to curb Medicare spending by $36 billion by 2011 -- and by $105 billion a decade from now -- represents a sharp turnabout for the administration. Just last year, Bush said that the health insurance program that covers 41 million elderly and disabled people should be spared any cuts, saying that it would be wrong to change the program at a time when the administration was preparing to implement a new prescription drug benefit, the largest expansion in Medicare's four-decade history. The drug coverage began last month, amid widespread complaints that elderly patients -- especially the poor -- are having difficulty getting medicine.

The budget for the 2007 fiscal year does not touch the drug benefit, nor does it recommend cuts in payments to doctors, who have just won from Congress a one-year reprieve from Medicare rate reductions that were to have taken effect last month.

Instead, about $20 billion of the $36 billion would come from reducing automatic payment increases to hospitals and other institutional providers, such as ambulance services and skilled-nursing facilities, while the rest would be spread among other forms of care. The reductions are in sync with ones that have been recommended recently by a federal Medicare commission that advises Congress.

The spending slowdown Bush envisions is far larger than the $6.4 billion in Medicare reductions over the next five years that Congress approved, after intense political fighting, in the current year's budget.

Congress also agreed to $4.7 billion in cuts for Medicaid, another entitlement program that provides insurance to the poor. Those cuts were less than half what the White House requested last year. Legislative sources said that, this time, Bush will not ask for any significant reductions in Medicaid.

Yesterday, several Democrats and Republicans on and off Capitol Hill predicted that the Medicare changes Bush is seeking would face stiff hurdles in Congress.

One key senator, Budget Committee Chairman Judd Gregg (R-N.H.) has said lately he favors tightening spending on Medicare, Medicaid and Social Security, echoing Bush's warnings that costs for the programs will swell dramatically once the baby-boom generation begins to retire in a few years. Still, one GOP aide said, "To think that we are going to get $36 billion out of Medicare in an election year, it's going to be a challenge."

Senate Minority Leader Harry M. Reid (D-Nev.) immediately denounced the Medicare proposal. "The president's priority is to protect HMO and drug company profits while shifting costs to beneficiaries and providers," Reid said yesterday. "Cutting funding for hospitals and other providers won't solve the health care crisis."

Hospital industry lobbyists, who enjoy strong support on Capitol Hill, also made clear that they were prepared to fight such cuts. Charles N. Kahn III, president of the Federation of American Hospitals, a trade group for for-profit hospitals, said that many hospitals already are losing money on Medicare's reimbursement rates and are facing rising costs, including for better information technology. Bush's proposal, Kahn said, "is the wrong policy at the wrong time."

Staff writers Peter Baker in Waco, Tex., and Spencer S. Hsu and Ann Scott Tyson in Washington contributed to this report.

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