The budget preserves and improves Medicare, extending the life of the Part A Hospital Insurance Trust Fund into 2007. Like the President's previous two budgets, it gives beneficiaries more choices among private health plans, makes Medicare more efficient and responsive to beneficiary needs, slows the growth rate of provider payments, and maintains the Part B Supplementary Medical Insurance premium at 25 percent of program costs. The plan saves $100 billion over five years (and $138 billion over six years), according to the Health Care Financing Administration's Office of the Actuary. The President also wants to work with Congress on a bipartisan basis to address the longer-term problem of financing Medicare to support the health care needs of the "baby boom" generation. Provider Payment Reforms and Program Savings • Hospitals: The budget reduces the annual inflation increase, or "update," for hospitals; reduces payments for hospital capital; reforms payments for graduate medical education; and begins to reform the payment methodology for outpatient departments while protecting beneficiaries. from increasing charges for those services. • Managed Care: Along with the Administration's previous proposals to reduce the current geographic variation in payments, the budget proposes a new managed care payment methodology in light of substantial evidence that Medicare pays too much for managed care plans and, in fact, loses money for every beneficiary who opts for managed care. The budget would reduce Medicare reimbursement to managed care plans from its current rate of 95 percent of fee-for-service rates to 90 percent. To enable the industry to prepare for this change, the Administration would not implement it until the year 2000. The Administration views this reform as a first step and will continue to work with the industry to create a better reimbursement mechanism for Medicare managed care plans. Physicians: The budget reforms physician payments by paying a single update for all physician services-based on a single "conversion factor," or base payment amount, and replacing the current three conversion factors, effective January 1, 1998. The budget replaces current "volume performance standards" with a sustainable growth rate. • Home Health Agencies/Skilled Nursing Facilities: The budget implements payment reforms, leading to separate prospective payment systems for home health care and skilled nursing facilities. Prospective payments would begin to bring the current double-digit rise in spending on these services under control. The budget also proposes to reform the home health benefit by paying for services following a hospital stay from the Part A Trust Fund and paying for other services from Medicare's Part B Trust Fund. Beneficiaries would not be affected by the change. In addition, the change will not count towards the budget's proposed $100 billion in Medicare savings through 2002, but will help to extend the solvency of the Part A Trust Fund. • Other Providers: The budget makes payments for durable medical equipment and laboratory services more consistent with private market rates and reduces payment updates to ambulatory surgical centers. The budget also proposes to address Medicare's overpayment for prescription drugs that are provided in a physician's office by making payments more competitive with what private purchasers pay. • Beneficiaries: The budget continues, but does not increase, the requirement that beneficiaries pay 25 percent of Part B costs through the monthly Part B premium. The budget imposes no new cost increases on beneficiaries. The budget also would maintain current law to prevent "balance billing," ensuring that doctors in the new managed care plan options may not charge above Medicare's approved amount and leave the elderly vulnerable to higher costs. • Private Plan Choices: The budget increases the numbers of plans-including Preferred Provider Organizations and Provider Sponsored Networks-available to seniors and people with disabilities. These new options will meet strong quality standards and include consumer protections. The plans would be required to compete on cost and quality, not on the health status of enrollees. Beneficiary Improvements The budget proposes reforms to improve and increase services to beneficiaries, to protect them from the burden of additional costs, and to offer them offer them a wider choice of private plans. • Preventive Health Care: The budget covers new preventive health benefits including: colorectal screening; diabetes management; preventive injections like pneumonia, influenza, and hepatitis B; and annual mammograms without coppayments. • Alzheimer's Respite Benefit: The budget establishes a new respite benefit for the families of Medicare beneficiaries with Alzheimer's disease. Medicare beneficiaries would be eligible to receive non-medical care, giving family members a much-needed break from the constant demands of caring for them. • Outpatient Department Payments: Payments to hospitals for outpatient services are one of Medicare's fastest growing components. Due to flaws in the current reimbursement methodology, hospital hospital outpatient departments get a reimbursement higher than their actual costs. In effect, beneficiaries pay about a 50-percent copayment for hospital outpatient services, as opposed to the 20-percent copayment made for other Part B services. Medicare's payments are not always reduced to account fully for these high copayments. The budget corrects these flaws by establishing a prospective payment system for outpatient services and ensuring that, by 2007, beneficiaries pay the same 20-percent copayment as they do for other Part B services. • Medigap Protections: The budget adds protections, such as new open enrollment requirements and prohibitions against the use of pre-existing condition exclusions, to help Medicare beneficiaries who wish to opt for managed care but fear they will be "locked in" and unable to access their old Medigap protections if they switch back to a fee-for-service plan. The Working Disabled: The budget proposes a Medicare demonstration project to encourage Social Security Disability Insurance (SSDI) beneficiaries to return to work. Under the four-year, Nation-wide demonstration project, SSDI beneficiaries who return to work beginning in 1998 would receive Part A coverage through 2001 without paying the premiums. Additional High-Priority Initiatives The budget contains other reforms to improve the Medicare program as well as adjustments to Medicare payments to ensure that rural beneficiaries have access to health care services. • Rural Health Care: The budget would expand access to, and improve the quality of, health care in rural areas. It would extend the Rural Referral Center program; allow direct Medicare reimbursement for nurse practitioners, clinical nurse specialists, and physician assistants; improve the Sole Community Hospital program; expand the Rural Primary Care Hospital program; and provide grants to promote telemedicine and rural health outreach. The proposed changes in managed care payment methodology also would promote access to managed care plans in rural areas. • Fraud and Abuse: The budget proposes strong fraud and abuse provisions, including measures to eliminate fraud in home health care-such as by ensuring that home health agencies are reimbursed based on the location of the service, not the billing office, and by enabling the Secretary of Health and Human Services to deny payments for excessive home health use. The budget also would repeal several provisions in last year's HIPAA law that weakened anti-fraud enforcement. Together, these initiatives would save about $9 billion. Strengthening Medicaid The budget would reform Medicaid to give States much more flexibility to manage their programs, while preserving the guarantee of high-quality health care and long-term services for the most vulnerable Americansmillions of children, pregnant women, people with disabilities, and older Americans. The budget would ensure that as we control the costs of Medicaid, we do not compromise what is right with the program. The growth in Medicaid spending has slowed significantly over the past two years. The budget, however, ensures that our success in bringing Medicaid spending under control will not be lost in future years, when the actuaries project that Medicaid spending will again begin to rise. The budget would save $22 billion from a combination of policies to impose a per capita limit on spending and reduce Disproportionate Share Hospital (DSH) payments and retarget them to hospitals that serve large numbers of Medicaid and low-income patients. The budget also makes a number of improvements to the Medicaid program, including changes to last year's welfare reform law, costing $13 billion over the same period. Program Savings • Per Capita Cap: Even though the growth in Medicaid spending has fallen in recent years, aggregate Medicaid spending still will grow at an average annual rate of 7.2 percent from 1997 to 2002. To ensure that Medicaid's explosive growth of the 1980s and early 1990s does not resume, the budget would set a per capita cap on Medicaid spending, based on spending per beneficiary in a base year, increased by an annual growth limit. The cap protects States facing population growth or economic downturns because it ensures that dollars follow people, allowing Medicaid spending to respond to changes in caseload and the economy. Disproportionate Share Hospital Payments: Medicaid DSH spending doubled each year from 1988 to 1993. Although this rapid growth has slowed, due to 1993 legislation that modified the program, the DSH program is still large, and the payments could be targeted better. The budget proposes reforms to reach this goal without undermining the important role these funds play for providers who serve a disproportionate number of low-income and Medicaid beneficiaries. Provisions to Increase State Flexibility The budget continues the President's strong commitment to giving States the flexibility to design their own Medicaid program. The budget would ensure accountability for highquality health care while enabling States to develop programs that meet the special needs of their populations. • Coverage for Children: The budget would let States provide continuous coverage for one year after eligibility is determined, guaranteeing more stable coverage for children and more continuity of health care services. In addition, it will reduce the administrative burden on Medicaid officials, health care providers, and families required to refile paperwork to determine their children's eligibility. • Coverage Without Waivers: The budget would let States, without a waiver, expand coverage to any person whose income is under 150 percent of the poverty line, within their per-capita spending limits. munity-based settings without Federal waivers. • Boren Amendment: The budget would repeal the "Boren amendment" for hospitals and nursing homes, giving States more flexibility to negotiate provider payment rates. • The Working Disabled: The budget would let States establish an income-related premium buy-in program under Medicaid for people with disabilities who work. It would let eligible Supplemental Security Income beneficiaries who earn more than certain amounts purchase Medicaid coverage by paying a premium that States would set on an income-related sliding scale. Maintaining and Expanding Coverage for Working Families The President's budget plan would help an estimated 3.2 million families, including 700,000 children, keep their health care coverage for to six months up until their breadwinners find new jobs. The budget also would help provide health coverage for millions of children who do not now have it. Finally, the budget proposes to help States to create voluntary health insurance purchasing operatives. Health Insurance for the Families of CO While unemployment remains low and job creation remains high, the fast-moving economy creates rapid job turnover and job elimination. An estimated one in four workers will make an unemployment claim at least once in four years. With health care coverage in this country usually linked to employment, many workers lose their health care coverage during these brief periods of unemployment. Nearly half of workers with one or more job interruptions experienced at least a month without health insurance between 1992 and 1995. Nearly half of children who lose their health insurance do so because of a change in their parent's employment status. A family experiencing a catastrophic illness during this transition loses the benefit of years' worth of premiums. Worse, for families with an ill child or a worker with a chronic condition, the loss of health insurance while their breadwinner is between jobs can make it financially impossible for them to regain coverage. The budget proposes a national demonstration program to help States finance up to six months of coverage for the unemployed and their families. The program would be available to recipients, based on need, who had employer-based coverage in their prior jobs. Eligible individuals and their families would have access to a policy generally equivalent to the Blue Cross/Blue Shield Standard Option plan available through the Federal Employees Health Benefits program. The plan gives States flexibility to administer their own programs (e.g., through Medicaid, COBRA, or an independent program). It would cost $1.7 billion in 1998, $9.8 billion from 1998 to 2002. Health Coverage for Children The budget proposes several measures to expand health care coverage to more children. Combined with the proposal to help the families of unemployed workers (discussed above), and the ongoing phase-in of Medicaid coverage for a million older children, these additional proposals could add coverage for as many as five million children. The President is pleased with the widespread congressional interest in expanding health care coverage for children, and he looks forward to working with both Democrats and Republicans to develop and implement proposals to reach that goal. • State Grants to Develop Innovative Programs: The budget provides $750 million a year in grants to States ($3.8 billion from 1998 to 2002) to build on recent State successes in working with insurers, providers, employers, schools, and others to develop innovative ways to provide coverage to children. This proposal would cover an estimated one million children. • Continuous Medicaid Coverage to Children: The budget provides funds to let States extend one year of continuous Medicaid coverage to children, potentially helping one million children who would otherwise have lost coverage to keep it. The proposal would reduce administrative bur dens on States, families, and health care plans who now must determine eligibility at least every six months. • Medicaid Outreach: About three million children are now eligible for Medicaid, but not enrolled. The Administration will ask the Nation's Governors to work with us to find ways to reach and sign up such children. • School Health Centers and Consolidated Health Centers (CHCs): The budget provides more funds for CHCs to expand and enhance services to working families and their children through school-based health clinics. Voluntary Purchasing Cooperatives Employees in small businesses and their families are far likelier to be uninsured than other Americans. Small businesses have more difficulty providing health care coverage for their workers because they have higher per capita costs due to increased risk and extraordinarily high administrative costs. The budget would make it easier for small businesses to provide health care coverage for their employees, by helping them to band together to reduce their risks, lower their administrative costs, and improve their purchasing power with insurance companies. The budget proposes to empower small businesses to access and purchase more affordable health insurance through voluntary health purchasing cooperatives-providing $25 million a year in grants that States can use for technical assistance, and setting up voluntary purchasing cooperatives and allowing them to access Federal Employees Health Benefit Plans. Promoting Public Health The budget invests in preventive steps that show the greatest promise of ameliorating pain and suffering while controlling future costs. In particular, the budget focuses on preventing teen smoking; substance abuse; teen pregnancy; the spread of AIDS and HIV infections; food-borne diseases; the spread of infectious diseases; and infant mortality. The budget also invests in health care services for low-income and other vulnerable popu lations, such as American Indians and Alaska Natives. Expanding Biomedical and Behavioral The budget continues the Administration's longstanding commitment to biomedical and behavioral research, which advances the health and well-being of all Americans. For the National Institutes of Health (NIH), it proposes $13.1 billion for biomedical research that would lay the foundation for future innovations that improve health and prevent disease. The budget includes funding for high-priority research areas such as HIV/ AIDS (including efforts to develop an AIDS vaccine), breast cancer, spinal cord injury, high performance computing, prevention and genetic medicine. The Office of AIDS Research will continue to coordinate all of NIH's AIDS research. The budget also includes the second year of funding for a new NIH Clinical Research Center, which would give NIH a state-ofthe-art research facility in which researchers would bring the latest discoveries directly to patients' bedsides. NIH's top priority continues to be financing investigator-initiated research project grants. Providing Direct Services and Preventive Care to Special Populations While basic biomedical research lays the foundation for medical advances, direct health services and prevention activities reduce the cost of medical care, and directly benefit Americans by preventing disease outbreaks and promoting the population's health. The budget proposes funding increases for the following health service and prevention activities: • Preventing and Treating AIDS through Ryan White HIV/AIDS Treatment Grants/ HIV Prevention: The budget proposes just over $1 billion for activities authorized by the Ryan White CARE Act, $40 million more than in 1997, to help our most hardhit cities, States, and local clinics provide medical and support services to individuals with HIV/AIDS. Under this Administration, funding for Ryan White grants has risen by 158 percent. The proposed level |