Roughly half of all non-defense spending cuts in the emerging budget accord will come from Medicare, leading to significant changes in the program that covers hospital and doctors' costs for 33.3 million elderly and disabled Americans, according to participants in the budget negotiations.
The proposals being considered would affect beneficiaries and health providers alike. And for the first time since Medicare was created in 1965, they would link the program to incomes, forcing higher-income retirees to pay more than poorer seniors.
One Democratic proposal envisions saving $72.3 billion from the program over five years. And Republicans are pressing for big Medicare savings too.
"Medicare will have some very major changes," Rep. Bill Frenzel (Minn.), the ranking Republican on the House Budget Committee, predicted yesterday.
Under the Democratic plan, $28 billion would come from cuts in payments to providers, $27.1 billion would come from linking premiums to beneficiaries' incomes and $17.2 billion would result from changes that would require beneficiaries to pay higher out-of-pocket costs.
But concessions on Medicare are likely to make Democratic lawmakers even more reluctant to accept Republican proposals such as the capital gains tax cut, which would primarily benefit wealthy Americans.
"I don't think anyone questions that some savings in the Medicare program are needed, but it is a question of balance," said Robert Greenstein, director of the Center on Budget and Policy Priorities. "I don't know how budget negotiators can ask elderly people to sacrifice while proposing a capital gains tax cut."
Eugene Glover, president of the National Council of Senior Citizens, said the proposed changes would "shred the Medicare program and destroy needed health care protection for older Americans. ... Seniors didn't cause this deficit, they shouldn't be asked to pay more than their fair share."
Budget negotiators have focused on Medicare because its cost has ballooned to $105.4 billion a year and it is the fastest growing part of the federal budget. Without any changes, Medicare would grow at 12 percent to 13 percent during the next fiscal year.
That also means that every cut in the program in the first year is magnified into greater deficit reductions in later years of the budget agreement. Plans to save money from Medicare also address concerns about throwing the economy into recession. Even with changes in Medicare, the program spending will increase somewhat faster than inflation, one administration official noted.
Rising Medicare costs are being driven by rising medical costs, by new medical technologies for treating the elderly, and by the growing number of senior citizens. Even if the proposed savings are enacted, there will be pressure to overhaul the system.
Medicare has two parts. Plan A covers hospital costs and comes from a trust fund. Although long in surplus, that trust fund is running a deficit now and is expected to be depleted just after the turn of the century.
Plan B covers physicians' bills and participation by senior citizens is voluntary. Initially, premiums paid by beneficiaries covered half the cost of the program and general tax revenues covered half the cost. But the government subsidy now covers three-quarters of the cost and is projected to grow to 88 percent by the end of the decade.
"I consider the fundamental design of the Medicare program to be unsustainable," said Deborah Steelman, a lawyer heading a commission named by President Bush to examine Medicare reform. She noted that an increasing number of physicians and health groups are refusing to accept Medicare patients.
Meanwhile, however, the size of the program means that cuts in Medicare could affect as many senior citizens as cuts in Social Security payments -- and could be just as sensitive a political issue. Families USA, a national seniors watchdog group, has called Medicare cuts "nothing more than a Social Security COLA cut in disguise."
Linking higher Medicare premiums to the ability of beneficiaries to pay would address the concerns of many senior groups about low income earners. But a similar plan last year that would have raised premiums paid by high-income senior citizens in order to provide catastrophic health insurance for all aroused such sharp criticism that lawmakers beat a hasty retreat.
"I'm glad to see they're thinking about income sensitivity, but you also need to be politically realistic ..." said Phyllis Torda, the health policy director of Families USA.
Sen. Harry Reid (D-Nev.) yesterday called the proposal to link Medicare premiums to the beneficiaries' ability to pay "the Son of Catastrophic. ... It's the same old song with a new set of lyrics, but it's still off-tune and way off-base."
But Frenzel said that boosting Medicare premiums for Plan B would not provoke the same outrage because participation in the plan is voluntary. And, said Frenzel, "We're not asking for anybody to pay for anyone else's benefits."