V I E W P O I N T

The President's FY 2009 Budget & Its Effect on Seniors

On February 4, 2008, President Bush submitted his Fiscal Year 2009 Budget to the Congress. In his budget, the President estimates the FY 2009 federal deficit will be $407 billion and that our accumulated publicly-held federal debt will reach $5.9 trillion. He projects that interest payments on our soaring federal debt will cost $527 billion in FY 2009 and will crowd out $226 billion of other spending priorities over the next five years.

While the federal deficit appears to be substantial, it would be much larger if not for the billions of dollars in Social Security surpluses that mask its true size. The $204 billion in Social Security surpluses estimated for FY 2009 will in fact conceal the true size of the federal deficit in FY 2009. Without the Social Security surpluses, the FY 2009 deficit would be approximately $611 billion. The oldest members of the baby boom generation will be eligible to collect Social Security early retirement benefits in 2009. With this in mind, our government should be taking more responsible steps to reduce the growing federal debt so that we can more easily devote the budgetary resources necessary to fund our commitment to seniors.

Instead of responsibly preparing for the retirement of the baby boom generation, the President's budget is filled with skewed priorities that harm seniors. He proposes $635 billion in tax cuts over the next five years that primarily benefit the wealthiest Americans while cutting funding to social insurance and safety net programs that benefit older Americans. He again proposes to privatize Social Security by diverting precious payroll tax dollars into private accounts at a cost of $647 billion in the first ten years, and to cut future benefits further by changing the way they would be calculated. The President also recommends a new lopsided budget rule that allows tax cuts to continue to increase the deficit, but prohibits any new spending on Social Security and Medicare that is not offset by cuts in those programs. This rule would make it extremely difficult to find bipartisan solutions that strengthen the long term finances of Social Security and Medicare.

This paper summarizes some of the key proposals affecting seniors in the President's FY 2009 budget. More detailed information on the President's proposals for Social Security, Medicare, the Older Americans Act, and budget process reform are available on the National Committee's website (www.ncpssm.org) or by calling 1-800-966-1935.

Social Security

Once again, the President uses his annual budget to push for Social Security privatization.

In his budget, the President proposes diverting up to one-third of Social Security payroll taxes into a private account. The President assumes these private accounts would begin in 2012 and estimates their cost at $30 billion in the first year and $647 billion by 2018. The Administration has hidden the true cost of private accounts by phasing them in toward the end of the budget window. Other experts have suggested that the President's private account proposal would add over $1 trillion to the federal debt during their first 10 years of operation. The President also expresses support for changing the way initial Social Security benefits are calculated. Through this change, from wage indexation to price indexation, benefits would be cut for all workers whose lifetime average earnings are more than $20,000 a year, whether or not they opt for a private account. This change would break the link between contributions and benefits, and leave future retirees with little more than a poverty- level Social Security benefit. The President's budget shows what the public already clearly understands: private accounts increase the federal debt, dramatically cut Social Security benefits, and worsen Social Security's long-term solvency by diverting payroll taxes out of the trust fund.

The President's budget proposes to cut Social Security by $15 billion in the next 10 years. 
He would accomplish this by tightening enforcement of the Government Pension Offset (GPO) and Windfall Elimination Provisions (WEP), which the National Committee believes should be repealed, cutting benefits for some children and reducing benefits for those who receive both Disability Insurance (DI) benefits and workers' compensation (WC).

The President proposes an arbitrary funding limit for the Social Security disability insurance (DI) program.
The budget creates what it terms a “DI Funding Warning” if the Trustees project that the Disability Insurance trust fund has a cash deficit that is more than 10 percent of program costs for 4 consecutive years in the upcoming 10 years. Once the funding warning is triggered, the President would propose legislation to respond to the warning within 15 days after the date of the next budget submission; the Congress would then consider this legislation.

Medicare

The President proposes nearly $178.2 billion in legislative and administrative Medicare cuts over the next five years, $556.4 billion over the next 10 years, and more than $10 trillion over the next 75 years.
The bulk of these cuts come from reducing how much traditional fee-for-service Medicare will pay to providers such as hospitals, hospices, ambulance services, skilled nursing facilities, inpatient rehabilitation facilities, home health agencies, and ambulatory surgical centers. Unfortunately, the budget funds the massive cuts by increases in beneficiary cost-sharing, but does not take any corresponding steps to generate Medicare savings by reducing the overpayments to private Medicare HMOs. Currently, Medicare is paying Medicare Advantage plans an average of 13 percent more than it would cost to cover the same beneficiaries under the traditional fee-for-service Medicare program.

The budget proposes automatic cuts in Medicare once an arbitrary funding level is reached.
The President's budget would require an automatic reduction in provider payments when it is projected that general revenues will finance more than 45 percent of total Medicare spending. The reduction would begin as four-tenths of a percent reduction in the year the threshold is exceeded, and would grow by four-tenths of a percent every year the shortfall continues to occur. Instead of cutting Medicare payments based on the 45 percent threshold, Congress should immediately repeal the threshold as an arbitrary measure of Medicare's health. It ignores Medicare's financing structure and limits the options available to address Medicare's long-term financial challenges.

The budget continues the President's crusade to means-test and undermine Medicare.
The President once again proposes to eliminate the inflation-adjusted thresholds for the means-testing of Part B premiums. In 2008, Medicare beneficiaries with more than $82,000 in annual income (or couples with more than $164,000) will pay higher Part B premiums under current law. The part B means testing will be fully phased in by 2009. The income thresholds will be increased each year to reflect inflation. President Bush proposes to eliminate these adjustments, so that more people would have to pay the higher premiums each year. The taxation of some Social Security benefits and the Alternative Minimum Tax provide us with examples of how dangerous this provision can become over time as more middle- income seniors are affected.

Once again, the President proposes to apply means-testing to Medicare Part D. The FY 2009 budget proposes to means-test Part D using the same income thresholds for the means-tested Part B premium. In other words, individuals making more than $82,000 and couples making more than $164,000 will begin to pay higher Part D premiums. The budget estimates these two means-testing proposals will raise Medicare premiums by $22 billion over the next five years. Many seniors have already opted not to enroll in the Part D prescription drug benefit because it is not cost effective for them. Raising their premiums further only reduces the value of the drug benefit. Over time, these proposals will affect middle-income seniors and could force many to opt out of the program altogether.

Community Services Programs

The President's budget proposes cuts totaling $204 million for Older Americans Act programs in FY 2009. President's budget request eliminates funding for preventive health services and Alzheimer's demonstration grants ($32million), and reduces funding for in-home and community-based supportive services, the National Family Caregiver Support program, the long-term care ombudsmen program, and the senior employment program ($172 million). With our nation's growing elderly population, clearly this is not the appropriate time to cut programs and services that provide critical home and community-based care. Instead of these cuts, funding for Older Americans Act programs should be increased by at least 9 percent above FY 2008 levels to account for inflation and address the growing senior population and demand for services.

The budget also provides for $500 million in cuts to other important programs that benefit seniors.
President Bush proposes to reduce funds for the Social Services Block Grant (SSBG) which provides a wide array of community-based programs and services to older adults and to people with disabilities, children and families. It also provides inadequate funding for legal services, elderly housing programs, and the Low-Income Home Energy Assistance Program (LIHEAP). Further, the budget eliminates the Community Services Block Grant which provides important senior center and nutrition services to older Americans.

Medicaid

The President's budget proposes a number of legislative and administrative cuts to the Medicaid program totaling $18.2 billion over the next five years.
Some of the cuts include: lowering payments for targeted care case management services; reducing matching funds to states for Medicaid-related administrative activities; decreasing payments to government providers; limiting the rehabilitation services allowed under Medicaid ; and eliminating Medicaid Graduate Medical Education (GME) payments to teaching hospitals and training programs. Furthermore, the President proposes to make it more difficult for people to qualify for Medicaid by preventing states from increasing the home equity limit used to calculate eligibility for long-term care.

These proposed Medicaid cuts come on the heels of the Deficit Reduction Act (DRA) which became public law just one year ago. The DRA made substantial cuts and detrimental program changes to Medicaid that imposed premiums, increased beneficiary cost-sharing, and made it more difficult for seniors to qualify for long-term care service under Medicaid. The President's most recent Medicaid proposals are another example of his attempt to balance the budget on the back of those who are least able to bear the burden while protecting tax cuts to the wealthiest Americans.

Veterans' Health

While the President's budget increased funding for veterans' programs in FY 2009 compared to last year, it also continues a number of new and increased fees on veterans for health care. For example, the President proposes to create an annual enrollment fee based on income that would range from $250 to $750. He also recommends increasing pharmacy copayments from $8 to $15 for Priority 7 and Priority 8 veterans. Our veterans have proudly served our country and they deserve a health care system that meets their needs and not one that merely shifts to them more of the financial burden of health care.

Conclusion

The National Committee believes the President's budget represents a continuation of his effort to shift more of the cost of government onto our most vulnerable citizens, and onto middle income workers and retirees. He would do this while protecting tax cuts doled out to the wealthiest among us – those who have already benefited the most from the growth in the economy. This budget clearly does not reflect the priorities of the American people and should be rejected by Congress.

Government Relations and Policy, May 2008