Bush plan to aid health coverage

By SIOBHAN MCDONOUGH
ASSOCIATED PRESS WRITER

WASHINGTON -- President Bush will propose about $140 billion in new spending over the next decade to help more people get health insurance, Health and Human Services Secretary Mike Leavitt said Thursday.

Of the total, he said, $10 billion would go toward covering more children through Medicaid and the State Children's Health Insurance Program, which focuses on children of the working poor.

Leavitt said an additional 12 million to 14 million Americans could get access to health insurance over the next 10 years.

The government estimates that 45 million people currently lack health insurance. Of those, 8.4 million are children, according to the latest census figures.

Meeting with reporters, the new health secretary outlined some of his goals. "The job here the president has given me is to help Americans live longer and healthier but to do it in a way that allows us to maintain our economic competitiveness," he said.

The department says that Medicaid is expected to grow at a rate that will exceed 7 percent a year over the next 10 years.

Leavitt said there are ways to wring nearly $60 billion in savings in the program over 10 years. Those include:

-$15 billion, by changing the formula that Medicaid uses to purchase drugs - from average wholesale price to something closer to the average sale price. This would require a new law.

-$4.5 billion, by no longer allowing middle-class people to shift their assets and have Medicaid pay for nursing home care.

-$40 billion, by preventing states from using accounting "gimmicks," such as double-dipping, to maximize their reimbursement.

Double-dipping is when states overpay providers, get the overpayment returned to them and spend the same dollars a second time.

Most states have employed these "gimmicks," but Leavitt declined to say which ones. He said that, where he was governor for 11 years, was not one of those states.

Leavitt said he understood that governors are under pressure to meet their budgets. But he said the practice of shifting this money - described as a shell game in which the federal government repays states for money that supposedly was spent - is unfair.

Leavitt has recently spoken to several governors on the issue. He described the conversation as "awkward" but necessary.

The National Governors Association has acknowledged problems with the states' stewardship of Medicaid, including the transfers of money between them.

"We agree that maintaining the status quo in Medicaid is not acceptable," the group said in a letter. "However, it is equally unacceptable in any deficit reduction strategy to simply shift federal costs to states."

The group did not want to comment until reviewing details of the budget.

Medicaid, paid jointly by Washington and the states, is expected to cost the federal government about $190 billion this year.

Bush's budget proposal will be released Monday. He has said he will look to control popular benefit programs to save money. Programs such as Medicaid are among the biggest and fastest-growing parts of the budget, but are also popular and difficult for politicians to cut.

Mortgages rates- Interest.com. Compare current interest loan rates for mortgage programs and lenders

Feb. 3--Mortgage rates won't start galloping upward. And home prices won't start retreating downward, even with the Federal Reserve threatening more interest rate hikes after making their sixth one of eight months on Wednesday That's the word from Scott Simon, head of the mortgage team at Pimco, the Newport Beach bond traders managing $445 billion in assets.

Simon noted that almost every word of the Federal Reserve's statement that accompanied their rate hike on Wednesday was the same as in their last two statements.

The hike also was identical to five previous increases.

"So (Wednesday's) announcement didn't really change much," he said.

Simon believes that mortgage rates -- currently averaging at 5.2 percent for a 30-year fixed loan -- will remain low, rising no more than 1 percentage point in the next year.

Pimco officials predicted in December that the Fed would rest after Wednesday's increase in its influential Fed funds rate to 2.5 percent.

But Pimco now believes the Fed may go as high as 3.5 percent.

"They've pretty much signaled that they'll keep going," Simon said.

Mortgage buyers carefully eye the housing market because they want to make sure the collateral underlying the loans they own is intact.

Home prices nationwide will continue rising in 2005, Simon said.

Appreciation will slow to zero by 2006, but Simon warns that prices may fall for overpriced top-end homes.

Simon worries that many people buying homes at today's record prices may be borrowing beyond their means.

Simon explained that when mortgage rates first dropped a few years ago, buyers could buy bigger houses for the same monthly payment.

"It's not surprising that (house) prices went up so much," he said.

But the buying frenzy didn't stop when the monthly house payments rose beyond the average buyer's means, he said.

Instead, many buyers with marginal credit histories are lowering their monthly payments by postponing paying down the loan balance. These loans also offer discounted starting or "teaser" mortgage rates that go up after two or three years.

Simon figures these borrowers face payments soaring as much as 40 percent after two years at a time when borrowers are "maxed out." Such risky borrowing poses the biggest risk to mortgage buyers like Pimco, who lose money if homeowners default on their loans. So Pimco is being very cautious about the mortgages they are acquiring.

"Our concern is when people use (these risky loans) when they can't qualify any other way," he said.

"They're over-extending credit to people who have the least means to afford it."

Fed lifts interest rates

Federal Reserve officials raised a key short-term interest rate yesterday and indicated they will continue lifting rates gradually this year to keep inflation in check as the economy grows.

Members of the Fed's top policymaking committee agreed unanimously to nudge the benchmark federal funds interest rate up to 2.5 percent from 2.25 percent.

The action marked the sixth increase of a quarter-percentage point since June, when the group started moving the rate up from 1 percent.

Fed policymakers are generally upbeat these days, indicating in recent remarks that they expect the economy to grow at a healthy pace this year while the job market improves and inflation remains tame.

At 2.5 percent, the rate is still so low it is still stimulating economic growth, the committee said after the meeting in a statement nearly identical to that issued after its previous meeting in December. With the economy now strong enough that it doesn't need that extra push, the Fed wants to raise the rate to avoid fueling inflationary pressures.

But with inflation low, Fed officials think they probably will keep raising the federal funds rate at a "measured" pace, they said in the statement. That means they likely will keep lifting the rate in small steps, of a quarter-point at a time, spread over many months.
At the same time, the group repeated language that emphasized its flexibility to pick up the pace of rate increases if inflation pressures build, or to move more slowly if the economy loses steam.

"The Fed's continuity suggests no plans to alter the thrust of its policy over the next few months," said Peter E. Kretzmer, a senior economist with Bank of America Corp.

The federal funds rate, the interest rate charged between banks on overnight loans, influences many other rates on business and personal loans. Major banks are expected to follow by raising their prime rate for business customers by a similar quarter-point, to 5.5 percent. Many consumer rates tied to the prime, such as on many credit-cards and home-equity loans, may rise as well.

Yet financial conditions have not tightened since the Fed started raising its rate last June, for the first time in four years. Mortgage rates, for example, were slightly lower last week than they were last spring. The national average rate on a 30-year, fixed-rate mortgage slipped to 5.66 percent last week, compared with rates above 6 percent last May and June.

Longer term rates are influenced by the federal funds rate, but ultimately they are determined by the markets in response to the overall demand for capital and investors' inflation expectations. With that demand still relatively mild and inflation expectations low, longer rates have not changed much.

But mortgage rates and other business and personal loans should rise this year as the economy grows and the Fed raises the funds rate higher, analysts say.

Fed officials have not said how far they will raise the funds rate this year and next. Several have said they want to move it closer to a "neutral" level that would neither spur nor slow economic growth, although they disagree about where that point lies. Individual Fed officials have offered various estimates, between 3.5 and 5.5. percent, and generally agree that it varies with economic conditions.

Economists have generally predicted the Fed will keep raising the rate to somewhere between 3 and 4 percent this year, depending on how strongly the economy expands and how inflation behaves. Many analysts predict the Fed will raise the rate again at each of the next two scheduled meetings, in March and May.