Bush seeks cap on payouts White House wants to limit Medicaid payments to states.

January 24, 1992|By New York Times

WASHINGTON -- As part of President Bush's effort to curb spending on health care, administration officials want to limit how much federal Medicaid payments to states can grow each year.

They also are proposing to tax as regular income employer-paid health insurance for families that earn more than $125,000 a year.

Administration officials outlined their ideas at a meeting yesterday with Republican senators and at a meeting with lobbyists for hospitals and health insurance companies earlier in the week. Both proposals are subject to approval by Congress.

Under the Medicaid proposal, the federal government would pay states a flat amount, fixed in advance, for each person enrolled in Medicaid, the health-care program for the poor. The increase in payments for each person would be limited to about 6 percent in 1994 and 5 percent in 1995, the senators and lobbyists were told.

That represents a major change. Currently, only 2.6 million of the 29.8 million Medicaid recipients are covered by such prepaid health plans. For other recipients, there is no limit on Medicaid payments; the government pays more if they use more services.

Federal Medicaid spending shot up 28 percent last year, to $52.5 billion, partly because of surging enrollment as a result of the recession. The Congressional Budget Office predicts that under current law the federal share of Medicaid will rise to $68 billion this year and $80 billion in 1993, almost twice the 1990 total.

The average payment for a beneficiary has been increasing more than 15 percent a year.

The proposed limit on Medicaid spending would allow an increase in federal payments if more people qualify for Medicaid as a result of unemployment or economic hardship.

But it would curb the growth in costs resulting from greater use of costly medical services by Medicaid recipients.

Congress is unlikely to impose a rigid cap on Medicaid, but might well go along with a proposal, currently being discussed by administration officials, to force large numbers of Medicaid recipients into health maintenance organizations and other "managed care" plans.

More than 30 states are already experimenting with such plans.

A federal health official said the Medicaid proposals were part of "a massive cost-containment strategy."

Larry S. Gage, president of the National Association of Public Hospitals, who attended the White House meeting, said yesterday, "Under the guise of national health-care reform, the administration is trying to resurrect arbitrary caps on federal Medicaid spending." Congress rejected such a ceiling when President Ronald Reagan proposed it in 1981 as a way to control costs.

States share the cost of Medicaid, and the program has become one of the fastest-growing items in state budgets. James L. Martin, director of state-federal relations for the National Governors' Association, said, "Governors do not like Medicaid caps because if your Medicaid costs are going up more than the per capita increase in federal payments, you would have to cut the program or find state revenues to pay for it."

Republican strategists have warned the administration that the proposal to tax part of the health insurance benefits of affluent people is full of political peril for Mr. Bush and other Republican candidates in this presidential election year.

But the White House budget director, Richard G. Darman, has brushed aside such doubts and defended the tax as sound health policy, administration officials said.

Mr. Darman contends the tax would discourage the purchase of excessive amounts of insurance and the resulting overuse of health care.

Here, according to the people at yesterday's meeting, is how the tax on health insurance benefits for affluent people would work: Families with annual incomes of more than $125,000 would be subject to the tax if they received employer-paid health insurance worth more than $160 a month. Employer contributions exceeding that amount would be taxed as regular income for the employee. Under current law, such contributions are not counted as taxable income.

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