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Congress Clears $2.6 Trillion Budget Plan, $10 Billion in Cuts to Medicaid Included

April 29, 2005

On Thursday, April 28 both the House and Senate narrowly cleared the FY 2006 budget resolution setting forth binding limits for both mandatory and discretionary programs for the next five years. The plan narrowly cleared both chambers -- 214-211 in the House and 52-47 in the Senate. Despite protests from members of both parties, the budget resolution includes a requirement for $10 billion in reductions to the Medicaid program over the next five years. Medicaid is by far the largest source of funding for public mental health services, accounting for more than 50% of spending.

Because the budget resolution only imposes restrictions on future congressional action, it does not require a presidential signature. The budget resolution also establishes tight limits on all discretionary spending over the next five years. This includes caps that will be imposed on annual appropriations bills for FY 2006, including the bills that cover agencies funding mental illness research and services, as well as housing and veterans. Congress will begin working on these spending bills in the summer and the tight limits are likely to create tremendous pressure to impose cuts.

What's Next for Medicaid?

As a mandatory entitlement program (as opposed to a discretionary program), Medicaid is not subject to an annual appropriations measure. Instead, the cuts to Medicaid in the budget resolution will be enforced through "reconciliation instructions" to the relevant House and Senate Committees -- in this case, the House Energy & Commerce Committee and the Senate Finance Committee. These Committees will be responsible for coming forward with specific legislation to meet the specified savings target of $10 billion over the next five years.

This "reconciliation" process will begin this summer and could stretch into the fall. The bill will require only 50 votes in the Senate (as opposed to the usual 60 to limit debate) and will require a presidential signature. As a result, the likelihood that a budget "reconciliation" package will get through the legislative process and reach the President's desk are strong.

These Committees will have broad discretion as to programmatic and policy changes necessary to meet the $10 billion Medicaid target. It had been expected that they would look first toward proposals initially suggested by the President. These included restrictions on state Medicaid financing mechanisms known as "intergovernmental transfers" (shifting funds between state and local governments to increase federal Medicaid matching dollars). In addition, the Administration had suggested clamping down on so-called "asset transfers" that allow middle income families to quickly qualify a relative for placement in a Medicaid-financed nursing home.

However, an assessment of these proposals by the Congressional Budget Office (CBO) found the savings from these proposals to be far less than the Bush Administration had projected. Thus, as these Committees begin work on the Medicaid cuts in reconciliation, everything is likely to be on the table. This could well include restrictions on both eligibility and benefits for optional populations, and potentially, optional benefits for mandatory populations (the cornerstone of Medicaid for individuals with severe mental illness).

In addition to requiring reductions to future Medicaid spending, the budget resolution also empowers a commission to examine policy alternatives for Medicaid reform. This group is expected work on a very short timeframe in order to develop recommendations in time to submit them to the House Energy & Commerce and Senate Finance Committees. Concerns are already being raised that this panel will be heavily focused on creating greater flexibility in state Medicaid programs, with very little attention to protecting Medicaid as a health care safety net program for the most vulnerable.

Once appointees to this HHS Medicaid working group are made, NAMI will begin pressing them on the need to maintain critical protections in the Medicaid program for children and adults with mental illness.

Recognizing Key Medicaid Supporters in Congress

Over the past month, several key members of Congress worked diligently to strip cuts to Medicaid from the budget resolution. Two of the most important to this fight were Senator Gordon Smith (R-OR) and Representative Heather Wilson (R-NM). Both withstood enormous pressure from the Bush Administration and congressional leaders to back off. Senator Smith was pressing for complete removal of Medicaid cuts as late as Wednesday, April 27. Representative Wilson organized 44 of her House Republican colleagues to sign a letter urging no cuts to Medicaid in the budget.

While their efforts were rebuffed in the end, they were instrumental in reducing the level of cuts to Medicaid by half -- from the $20 million proposed by the House, down to the final figure of $10 million. NAMI is extremely grateful for their advocacy on behalf of Medicaid beneficiaries with mental illness.


More from NAMI about Medicaid


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