House OKs $39 billion in cuts

Seniors, poor, students hurt

James Kuhnhenn
Knight Ridder
February 2, 2006

WASHINGTON – The House of Representatives on Wednesday narrowly approved $39 billion in budget savings over five years in a party-line vote that would rein in some federal spending by increasing costs for many Americans, including college students, the elderly and the working poor.

The legislation, approved by the Senate in December, now goes to President Bush, who issued a statement saying he'll sign it.

The 216-214 outcome was a key victory for Republican leaders, who worked fiercely to prevent too many moderates from defecting on the vote. Republican Reps. Cathy McMorris of Washington and Butch Otter of Idaho voted for the measure. In the end, 13 Republicans opposed the measure and no Democrat voted for it. A loss would have embarrassed the Republican leadership, coming on the first workday of this House session.

Republicans portrayed the spending cuts as necessary to make up for costs related to Hurricane Katrina and to hold the line on growing federal budget deficits.

The spending reductions, however, could be overshadowed by up to $70 billion in tax cuts over five years, which Congress hopes to pass in the next month. That would deepen deficits.

Democrats argued that the spending cuts would hurt the most vulnerable Americans and said the savings paled in comparison to tax reductions that Republicans have enacted over the past year.

The largest reduction in spending would be a nearly $12 billion slice in federal student loans. The cut would also increase interest rates for repaying the loans.

The legislation also would reduce Medicaid spending by $4.7 billion over five years while requiring most low-income Medicaid recipients to pay higher co-payments for health services. Current law prohibits health care providers from denying care even if patients can't pay nominal cost-sharing payments. Under this legislation, providers could deny service for lack of payment.

The measure also would increase penalties for seniors who shift their financial assets so they can qualify for nursing home care under Medicaid. Current law doesn't count the value of a senior's house in determining eligibility for Medicaid, but the bill would make any senior with more than $500,000 in home equity ineligible for nursing home benefits.

The nonpartisan Congressional Budget Office expects that by 2010 the legislation would increase costs of prescription drugs for 13 million Americans, half of them people with incomes below the poverty level.

In one provision that broadens health care coverage, families with incomes up to 300 percent of the federal poverty level who have disabled children would be able to use Medicaid to cover the children's health care costs. The provision would take effect on Jan. 1, 2007, and would be phased in over three years.

The legislation also reduces overall spending on Medicare, the health care program for the elderly, by $6.4 billion over five years.

It also would generate $7.4 billion in new revenue by authorizing the auction of licenses for use of the electromagnetic spectrum for radio, television, mobile phone and other wireless services.

Highlights of budget-cutting bill

» Student loans. $12.7 billion in net savings, achieved chiefly by reducing lender subsidies and retaining a scheduled shift from variable interest rates to a 6.8 percent fixed rate on most loans.

» Medicare. Saves a net $6.4 billion from the health care program for the elderly. Saves $6.5 billion by increasing Medicare payments to insurers that cover sicker patients and lowering payments to those covering healthier patients. Accelerates premium increases for better-off Medicare patients for doctor visits, and increases such premiums for all Medicare beneficiaries by about $2.30 a month in 2007.

» Medicaid. Saves $4.8 billion from the health care program for the poor and disabled by reducing payments for prescription drugs, tightening asset-transfer rules for nursing home eligibility, permitting states to reduce benefits and increasing co-payments paid by beneficiaries.

Associated Press