Related Items Full Coverage: White House Releases New Budget

By Spencer Rich
LEGI-SLATE News Service
Monday, Feb. 2, 1998

Even before President Clinton proposed radical changes Monday in the government's two largest entitlement programs, Social Security and Medicare, Republicans signaled strong opposition that could lead to election year fireworks, especially on Medicare.

"We have a great opportunity now to take action to save Social Security" from financing shortfalls that will begin in the year 2029, Clinton said in his budget message to Congress. He wants to reserve the anticipated federal budget surplus and prevent the money from being spent on tax cuts favored by many Republicans until the White House and Congress work out a solution to Social Security's long-term deficit problems. The White House hopes that such a solution will be reached in the 1999 session of Congress.

On Medicare, Clinton wants to let early retirees age 62 to 64 or the unemployed age 55 or over who lack health insurance "buy into" Medicare by paying a premium covering the full cost of their expected benefits. On reaching 65, they would shift to the regular Medicare program. Early retirees whose employers reneged on promises to provide them with health care would be allowed to buy into their employers' health plans by paying the full employer- employee premium plus 25 percent until reaching 65.

The Medicare buy-in was initially unveiled in January to almost universal condemnation by Republicans. They said the proposal would unduly enlarge Medicare even as it faced insolvency in a decade. They said the buy-in might cost the taxpayers if the premiums didn't really cover the cost of services to the buy-in patients, who would probably be the sickest people with the highest costs.

Employers also reacted negatively to the buy-in proposals involving employer health plans, fearing their actual costs would outstrip the premiums.

Although the budget surplus reserve and the Medicare buy-in are the most dramatic entitlement proposals affecting these two giant programs, the Clinton budget also includes a long list of other proposals to change Medicare. They include new ways to buy services, "user fees" to be paid by providers of Medicare health services and added programs to curb fraud, waste and financially abusive practices by providers of Medicare services.

The two programs are exceptionally sensitive, both politically and financially, because of their size.

Social Security, with anticipated outlays in 1999 of $396 billion to 44.8 million aged and disabled beneficiaries, is by far the biggest program in the government. It will outstrip Pentagon spending by about $130 billion.

Medicare, with $207 billion anticipated net outlays to provide health coverage to 39 million people in 1999, is the government's third largest program. It, too, faces financial problems as its hospital trust fund faces shortfalls in 2007.

So far, the president has not said precisely how he would "save" for Social Security an estimated budget surplus of $9.5 billion in fiscal 1999. The surplus will rise to $258.5 billion a year by 2008.

Assuming he actually wants to use these surpluses directly for Social Security, and is not just trying to leverage Republicans to cooperate with him, analysts say this is what he might be up to:

Social Security itself is expected to run a $106 billion a year surplus in 1999, so it doesn't need any new infusions of cash right now. So Social Security could receive bonds, equal to the overall federal surplus each year, which eventually can be redeemed for cash when Social Security needs it in the future. The actual cash represented by the federal budget surplus would be gathered by the Treasury and used to help retire the national debt.

This will pump money into the hands of the business community which has bought government bonds, enabling businesses to expand, train workers, invest in new plant, equipment and innovations. This will enlarge the future economy, meaning more workers, higher wages and thus more Social Security taxes collected to help pay for the program in the future. This extra future income, plus some program changes with benefit cuts not as radical as would otherwise be needed, will enable Social Security to remain solvent well past the current shortfall date of 2029, according to these analysts.

Medicare represents a different strategy. It has long been thought that the program is wasting about 10 percent of its outlays through inefficiency and dishonest practices by providers of health care. Even saving a good portion of the 10 percent would not be enough to keep the program solvent in the long run, so a 17-member commission headed by Sen. John Breaux, D-La., and Rep. Bill Thomas, R-Calif., will be meeting throughout this year in an effort to put together a long-term rescue strategy. They will report back to Congress and the White House by March 1999.

Meanwhile, the president on Monday proposed a series of steps to curb some of the waste and abuse in Medicare:

• Elimination of high mark-ups that Medicare pays on drugs for certain medical conditions.

• Competitive negotiation of rates with providers of care for certain procedures. For example, it might pay a hospital or health group with a reputation as being highly efficient and skilled, a single fee to perform a certain type of highly sensitive surgery, instead of separate fees to all those involved, which somehow usually add up to more.

• Requiring insurers to provide information that will allow Medicare to escape paying for a bill when, by law, an insurer is supposed to be the primary payer for that patient.

• A step-up in efforts to discover and stop pure fraud, such as billing too much for a service, billing for services not performed and similar schemes.

• Modernizing information-gathering and computer systems.

• Assessing a $1 fee for any claim not submitted by providers of care electronically, and assessing fees for duplicate or unprocessable claims.

• Various registration fees for providers of services and supplies.

• Cracking down on cases where providers of outpatient mental health care have not been providing the services for which they are being paid.

• Doubling the number of audits and cost reports in medical bills submitted by providers of care.