Medicare Savings Proposed in FY 2008 Budget to Come from Provider Payments

The "lion's share" of the Medicare and Medicaid savings over five years proposed in President Bush's fiscal year 2008 budget proposal comes from limits on annual inflation adjustments for reimbursements to hospitals, nursing homes and other health care providers for Medicare, amounting to $39.5 billion. The total five-year savings for the two programs under Bush's budget is about $101.5 billion. The budget proposal would reduce Medicare reimbursements to providers by 0.65% in FY 2008. In addition, the budget proposal would end a practice under which Medicare reimburses providers when beneficiaries fail to pay their bills. The budget proposal also would automatically reduce reimbursements by 0.4% when Medicare general revenue exceeds 45% of the total cost of the program and would reduce reimbursements to providers that fail to submit price and quality data after 2008. Under the budget proposal, Medicare reimbursements to hospitals would decrease by about $30 billion over five years. In addition to the $76 billion in Medicare savings over five years from legislative changes, the budget proposal includes $10.2 billion in savings from administrative changes to improve "efficiency, productivity and program integrity." The budget proposal would "eliminate annual indexing on income thresholds" to require a larger number of higher-income Medicare beneficiaries to pay increased premiums in future years. Currently, individual Medicare beneficiaries with annual incomes that exceed $80,000 and married couples with annual incomes that exceed $160,000 pay increased premiums. In addition, the proposal would implement a premium based on income in the Medicare prescription drug benefit.