The federal budget deficit has increased in each of the last four years and could exceed $450 billion by next year, according to some estimates. Medicare and Medicaid expenditures currently account for about 25% of the federal budget, and some Republican lawmakers maintain that Congress will have to reduce the cost of the programs to ensure their financial viability.

Analysts consider hospitals one potential target for reduced Medicare reimbursements because they received a large increase in payments under the new Medicare law, and some lawmakers have said that hospital profits could sustain a reduction in reimbursements, CQ Weekly reports.

However, according to analysts, Congress likely would not reduce Medicare reimbursements to physicians. Republican lawmakers who support malpractice reform proposals have said that physicians are "being squeezed by high malpractice insurance premiums," and a move to shorten Medicare reimbursements to physicians would "undercut that argument," CQ Weekly reports. According to CQ Weekly, support for reductions in Medicare reimbursements to providers could increase next spring after program trustees release their annual report on federal expenditures for Medicare Part A, which covers hospital services.

Earlier this year, Medicare trustees estimated that the Medicare Part A trust fund would become insolvent by 2019, and many analysts predict that the report next year will reduce that estimate. In addition, the new Medicare law requires the president to propose cost-reduction measures when Medicare trustees estimate in two consecutive years that the federal government will use general tax revenue to finance more than 45% of total program costs in the next seven years. Analysts predict the report from Medicare trustees next year will "probably show that the 45% limit will be crossed during the next seven years," CQ Weekly reports.

Prospects

Some lawmakers and their aides have doubts that Congress has the "political will" to reduce Medicare reimbursements to providers, with health care lobbyists "mobilizing for the coming debate, aware they will have to make their case to an increasingly conservative Congress," CQ Weekly reports.

According to CQ Weekly, a move to decrease Medicare reimbursements to providers is an "exercise fraught with political peril" because polls indicate that most voters "have tuned out" federal budget deficit reduction as an issue.

Most analysts predict that early efforts to reduce the federal budget deficit through decreased Medicare expenditures "will be comparatively modest," but "even minor cuts next year may presage further reductions and build momentum for more changes," according to CQ Weekly. G. William Hoagland, a budget aide to Senate Majority Leader Bill Frist (R-Tenn.), said that newly elected Republican lawmakers might support proposals to reduce the federal budget deficit, which they could consider a "moral" issue, and likely would target Medicare expenditures "only because you go where the money is." Robert Reischauer, president of the Urban Institute, added, "Those who are interested in reducing spending to lower the deficit ... are going to focus on Medicare and Medicaid." Sen. Judd Gregg (R-N.H.), who likely will become Senate Budget Committee chair in the next Congress, said, "Medicare and Medicaid are the two biggest drivers of the (long-term deficit)," adding that he is "interested in addressing short-term deficit drivers and long-term deficit drivers."

Reduction in Medicaid Expenditures?

According to CQ Weekly, Congress also might consider proposals to reduce federal Medicaid expenditures as part of an effort to reduce the federal budget deficit, but "there is little consensus on how to proceed." Some Republican lawmakers have proposed a cap on federal Medicaid expenditures. House Energy and Commerce Committee Chair Joe Barton (R-Texas) plans to hold hearings to increase support for broader Medicaid reform, such as a proposal to transform Medicaid into a capped grant program. The Bush administration offered a similar proposal in 2002, but governors argued that the plan would leave states with inadequate funds (Adams/Schatz, CQ Weekly, 11/13).

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