Medicare pay cuts among tough choices for bipartisan debt panel
■ Few expect members to agree on the minimum $1.2 trillion in reductions needed to prevent automatic across-the-board cuts beginning in 2013.
By Doug Trapp — Posted Aug. 22, 2011
Washington -- Few observers of Congress think a new bipartisan panel will achieve its goal of approving a federal deficit reduction plan of at least $1.2 trillion during the next decade and preventing automatic cuts to Medicare, defense and other areas. Either way, hundreds of billions in cuts to federal health care programs are on the table.
The Joint Select Committee on Deficit Reduction was created as part of a deal reached in early August to allow an increase in the nation's debt ceiling of at least $2.1 trillion, enough for the Treasury Dept. to cover its federal spending obligations until at least the beginning of 2013.
The legislation includes more than $900 billion in cuts during the next decade and instructs the select committee to find $1.5 trillion in additional deficit reductions. If the panel cannot agree on a large enough plan that can pass Congress, the deal would cut Medicare, defense spending and many other areas of the federal budget -- with certain exceptions -- by as much as $1.2 trillion, a figure that would be lowered by any smaller reductions to which lawmakers do agree. In either scenario, President Obama would be able to increase the national debt ceiling by an amount corresponding to the total size of the cuts.
The panel is operating under a tight timeline. If the select committee fails to adopt alternative reductions by Nov. 23, or if Congress misses a Dec. 23 deadline to adopt the panel's recommendations, the automatic scheduled cuts would become law.
The committee members -- appointed in mid-August by each major party's leader in the House and Senate -- issued initial statements that touched on themes of bipartisanship.
"No one believes this is going to be easy, but working with our colleagues on both sides of the aisle and in both chambers of the Congress, we will work to address our fiscal challenges and get America back to work," said Rep. Fred Upton (R, Mich.).
Sens. Max Baucus (D, Mont.), Patty Murray (D, Wash.) and John Kerry (D, Mass.) said in a joint statement: "This committee was designed to require bipartisanship, and we are going to work hard with our Republican colleagues to attain it."
But conservative Republican House members stand in the way of any deal that would increase federal tax revenues, while liberal Democrats will fight any cuts that impact entitlement programs and the health system reform law. Observers said conservative Republicans will watch Sen. Pat Toomey (R, Pa.) for signs of opposition to any of the proposals, and liberal Democrats will take their cues from Kerry.
The committee probably won't agree on any significant package of cuts, said Joe Antos, PhD, the Wilson H. Taylor Scholar in Health Care and Retirement Policy for the American Enterprise Institute, a conservative think tank in Washington. "Even if they do, it's a moot point, because I don't believe any committee can produce anything that will pass the House."
GOP leaders have not shown enough flexibility on increasing revenues to allow for a truly bipartisan deal, said Ron Pollack, executive director of Families USA, a liberal health consumer advocacy organization in Washington.
The only way the committee has a chance of meeting its goal would be if members perceive a political consequence for not acting to address increasing concerns about the economy and deficits, said Chris Jennings, a former health care adviser to President Clinton. Also, some committee members, such as Murray, are from states that would be affected significantly by the up to $500 million in automatic cuts to defense spending.
Medicare spending would be reduced by as much as 2% under the automatic cuts. Because benefits could not be touched, the reductions largely would come in the form of pay cuts to hospitals, physicians and others. Medicaid reductions can be considered by the panel and Congress, but the program is exempt from any automatic reductions.
Jennings said health care stakeholders are worried that the panel could adopt even deeper health care reductions in their areas than specified in the automatic cuts. "Fear of the unknown always is scarier than the known," he said.
The American Medical Association and American Academy of Family Physicians called on the committee to prevent both the automatic 2% Medicare reduction in the fallback plan and the 29.5% Medicare physician payment cut scheduled to take effect on Jan. 1, 2012.
AMA President Peter W. Carmel, MD, said the fiscally responsible action would be to repeal the sustainable growth rate formula that helps determine physician pay. "The cost of a permanent solution to this broken system has already increased dramatically due to repeated short-term fixes and will rise to $500 billion in only a few years if Congress does not change course."
Antos said the committee and Congress are more likely to adopt yet another one-year delay to the Medicare cuts called for under the SGR.
GME, health reform implementation at risk
If the debt panel process fails, the automatic cuts to certain federal spending would be significant -- up to 9% in 2013 -- and would affect the health reform law, Edwin Park said. He's vice president for health policy at the Center on Budget and Policy Priorities, a liberal Washington organization researching the impact of spending decisions on low-income people.
For example, the automatic cut would reduce federal grants to help states set up health insurance exchanges and other health reform implementation money. "It's not going to be a small cut," Park said.
The panel could propose replacing these automatic cuts with ideas discussed during the debt ceiling debate that were supported by Obama, Park said. These include calculating a unified federal matching rate for Medicaid for each state and then lowering that rate, plus restricting provider taxes that states use to draw additional federal Medicaid funds.
Some committee members could push for pharmaceutical companies to provide Medicare drug rebates similar to Medicaid rebates for people eligible for both programs. This could save $110 billion over a decade, but it would draw opposition from some members of Congress and the pharmaceutical industry, Park said.
AAFP President Roland Goertz, MD, said the AAFP is very concerned that the committee will reduce the $10 billion a year that Medicare spends on graduate medical education. This would affect smaller hospitals more than larger academic medical centers, he said.
"If you shut down the training pipeline in any fashion, you're going to deal with a much bigger problem later on," Dr. Goertz said.
Although the debt ceiling agreement allows the committee to consider tax reform, panel members need to search for less partisan ways to reduce the deficit, said Brian Darling, senior fellow for government studies at the Heritage Foundation, a conservative think tank based in Washington.
"This is going to come down to more of an accounting battle ... than a policy battle," he said. For example, how will the committee measure savings? Will it assume savings from allowing the Bush tax cuts of 2001 and 2003 to expire at the end of 2012? Will the panel count as savings reduced defense spending in Iraq and Afghanistan from the continuing drawdown of U.S. forces?
Although the committee's goal is to reduce federal deficits, lobbying organizations will try to get the committee to include fixes for issues that cost money, Darling said. "Some lobbying interests would consider this a once-in-a-lifetime opportunity to get something through the Senate and avoid a filibuster."