How debt deal's panel could affect health spending

Kaiser Health NewsAugust 4, 2011 

WASHINGTON — The deal that President Barack Obama and Congress struck this week to raise the nation's debt ceiling calls for creating a 12-member commission made up of an equal number of Republicans and Democrats selected from the House of Representatives and the Senate that will recommend how to trim at least $1.2 trillion in federal spending over the next decade.

Here's a guide to how the panel's deliberations could influence Medicare and Medicaid.

Q. Aren't Medicare and Medicaid protected from cuts right now?

A. Yes — and no. The debt deal itself made $917 billion in discretionary spending reductions during the next decade, and exempted Medicare and Medicaid. But the programs aren't protected in the next round of cuts.

Q. Won't deep differences between the parties over entitlements and taxes prevent the panel from reaching any agreement?

A. With Democrats likely to insist on tax increases and Republicans sure to seek entitlement cuts, agreement will be difficult. Stan Collender, a partner at Qorvis Communications and a former congressional budget staffer, said there was less than a 5 percent chance that the committee would come to an agreement that Congress would approve.

But if Congress doesn't agree on a debt plan, the debt-ceiling law triggers automatic cuts, including a 2 percent reduction in Medicare payments to hospitals and other providers. The trigger wouldn't touch Medicaid funding.

Q. There have been plenty of commissions that have worked on debt reduction. What makes this one different?

A. The threat of automatic, across-the-board spending cuts is what gives the debt panel more clout than its predecessors had. Many lawmakers dislike the idea of surrendering any power over the federal purse, especially when it could mean that spending on a favorite program could be at risk.

Q. What might the committee look at?

A. Among some of the alternatives that are expected to be considered are Medicare premium supports, which would give enrollees vouchers or credit to purchase private insurance plans rather than having the government directly pay for covered services; converting Medicaid to a block grant program, which also would limit federal funding; or asking higher-income Medicare beneficiaries to pay more for their coverage. Changes in spending for the 2010 health care overhaul also may be considered.

Bob Crittenden, the executive director of the Herndon Alliance, a liberal health care advocacy group, said Medicaid was most at risk in the committee because the group was unlikely to agree on cuts to Medicare or Social Security.

Q. Why are Medicare and Medicaid part of the debt discussions?

A. Medicare and Medicaid make up about 23 percent of federal spending and their costs have been growing faster than the economy overall has. Medicare costs have climbed partly because of the aging population, which has meant that more people are eligible for coverage. Medicaid costs increased with the recent economic downturn, which led to dramatic uptick in enrollment as people lost jobs and private health coverage.

Q. What do doctors and hospitals say about the cuts proposed as part of the automatic trigger?

A. Medicare providers say the reductions would hurt their ability to deliver medical care and that they'd mean less access to care for seniors. "If it affects providers, it affects beneficiaries," said Chip Kahn, the president and chief executive officer of the Federation of American Hospitals.

Q. How does a "fix" to Medicare's doctor payments figure into the issues the committee faces?

A. At the end of the year, Medicare is scheduled to cut pay to physicians by about 30 percent because of a budget rule adopted years ago. Since 2003, Congress has granted an extension each time the requirement has come due. Some analysts argue that the debt reduction efforts and the need to fix the doctor reimbursement formula could collide, especially because of the cost of fixing doctor pay. Pushing the issue off for another year would cost about $25 billion, although doctors have been pressing for a two-year fix at a cost of roughly $50 billion. These fixes would add to the nation's budget deficit and complicate the committee's work.

(Kaiser Health News is an editorially independent news service of the Kaiser Family Foundation, a nonpartisan health care policy organization that isn't affiliated with Kaiser Permanente.)

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