The President’s LTC-unfriendly budget

There are two reasons why you haven’t heard agonized screaming about the Bush administration's proposed federal budget for fiscal year 2008, released in January of this year. One is the possibility that no one is taking the budget seriously. As pointed out in earlier columns, President Bush submitted budgets annually that included sharp reductions in healthcare and housing spending that the Republican majority in Congress generally refused to pass. With the Democrats now in control of both houses of Congress, many Washington observers believe that the President's budget is even less likely to resemble what finally emerges from the appropriations process.

Another possible reason why congressional leaders are not denouncing the budget too loudly is because they find a lot of common ground with the President on federal spending. Both the President and the Democratic majority in Congress agree that returning to balanced budgets is a priority. President Bush's budget for the fiscal year that begins on October 1 promises to move the budget in that direction. At the same time, many of the President's proposed spending cuts are in programs that either have been widely abused or are not policy priorities of the administration. It is at least possible that Congress will be more willing than in previous years to grant some of the President's budget cuts—if only to be able to say in the 2008 elections that the country needs a Democratic alternative.

Consider, for example, proposed changes to programs of the Department of Housing and Urban Development (HUD) that have been of greatest interest to nursing homes and long-term care. The President's budget describes HUD as dedicated primarily to enabling Americans to move toward home ownership and notes that programs designed to accomplish this goal are well funded in the proposed appropriations. The “urban development” component of HUD is hardly mentioned at all. When specific development programs are mentioned, the budget often disparages them as unnecessary because they “duplicate activities” in the private sector.

This approach to HUD spending results in the proposed elimination of two federal programs that can be used to build assisted living and nursing home units: the Community Development Loan Guarantee Program, because it “duplicates private financing,” and the tiny Rural Housing and Economic Development program. This approach also reduces Community Development Formula Grants by 40%, from $4.3 billion to $2.6 billion. The White House justifies these cuts by pointing out that the HUD rural development program duplicates activities funded by the Department of Agriculture. In reality, both programs have been vulnerable to “raids” for congressional earmarks designed to reward potential political friends and campaign fund sources of individual members of the House and Senate. Neither the President nor the Democratic majority favors continuation of the earmark practice, at least on the scale practiced during the past five years.

The HUD account set aside specifically for housing for the elderly would receive a 23% decrease in appropriations under the President's proposal—from an estimated $747 million this year to $575 million next year. The Section 202 Housing for the Elderly program is potentially important to long-term care because its expansion account finances conversion of existing properties to assisted living and provides grants for coordinators of community services for the elderly. However, the proposed reduction in new money would not necessarily reduce access to this funding source. Previous years’ appropriations have not been entirely distributed, largely because of delays in legislating the HUD programs; as a result, the Section 202 housing program actually would have more money to spend next fiscal year than it does now. The budget proposes to use up to $25 million of the expansion funds for a demonstration project that leverages additional capital from the private sector to support construction of senior housing units. An additional $25 million would be dedicated specifically to upgrade developments to assisted living facilities.

In the healthcare field, according to the White House, billions of federal dollars are spent inefficiently through a patchwork of subsidies and payments to providers. Specifically, the President objects to subsidized operating expenses and grant payments to institutions that provide uncompensated care. In place of such institutional payments that have traditionally benefited hospitals, the budget proposes to subsidize insurance purchases by people with poor health or limited income. This proposal, however, is associated with the President's plan to revamp the tax code in favor of consumers who purchase insurance independently of employer-provided benefits—an idea that has not been enthusiastically received even among members of his own party.

The budget also proposes to redirect patients in need of high-quality post-acute care to what the federal government determines to be the most medically appropriate and efficient setting. Unfortunately, the budget arbitrarily assumes that skilled nursing facilities (SNFs) don’t meet those criteria. As a result, the budget schedules more than $10 billion in cuts to Medicare funding for SNF care over five years. While payments to skilled nursing facilities account for only 4.8% of the proposed Medicare budget, nursing homes would absorb more than 15% of the savings proposed from changes to Medicare.

Long-term care also receives “special attention” from proposed changes to Medicaid. For example, the Deficit Reduction Act of 2005 permits individuals who have up to $500,000 of home equity to be eligible for Medicaid long-term care services. States have the option to increase the limit to $750,000. The President's 2008 budget proposes to remove this option and establish a nationwide home equity limit at $500,000, despite wide national variation in real estate values.

While the federal government generally reimburses at a rate of 50% for all Medicaid administrative activities, there are exceptions that allow for a higher reimbursement rate. However, the budget proposes to align all administrative reimbursement rates in Medicaid to 50% to create consistency across the states in the administrative matching structure. In addition, the 2008 budget proposes to treat reimbursement for targeted case management as an administrative activity subject to the 50% rate cap.

In summary, President George W. Bush's proposals for the next fiscal year represent a determined effort to “rationalize” spending, remove opportunities for individual congressmen and states to make “wasteful” and “inefficient” use of federal funds, and return to the balanced federal budgets achieved under the previous administration. These are laudable purposes that are shared with the Democratic-controlled Congress. The problem for long-term care is that the specifics of the President's proposals include arbitrary cuts in grants, loan guarantees, and reimbursement rates that benefit SNFs and assisted living facilities, and neither party at this point seems terribly concerned.