Government and Health Care

Health care programs wait at the fiscal cliff

December 10, 2012
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Health care programs wait at the fiscal cliff
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The looming fiscal cliff has implications for health care. The package of automatic spending cuts and tax hikes is set to kick in during January 2013 unless President Obama and Capitol Hill agree on a way to stop them. Here are some items of interest regarding health care.

If no deal is struck, a series of automatic spending cuts known as "sequestration" would make Medicare providers subject to an across the board 2 percent payment cut or $11 billion in fiscal 2013. Hospitals would bear the largest share of the cuts, with payments reduced by about $5.8 billion, according to the Office of Management and Budget.

However, seniors on Medicare would see no changes in their benefits, although some providers will be reluctant to serve them if the payments are cut.

Physicians who accept Medicare patients face a 2-percent cut on top of an already scheduled 27-percent cut in January. That payment formula was created in the1997 deficit-reduction bill that called for setting Medicare physician payment rates through a formula based on economic growth, the "sustainable growth rate." For a few years, Medicare expenditures didn’t exceed the target, and doctors received some pay increases. However, in 2002, doctors came in for a 4.8 percent pay cut. Every year since, Congress delayed the cuts. But each time they increased the size and cost of the fix needed the next time. A deal on this could be part of any "grand bargain.” Some doctors say that if Medicare reimbursements are further reduced they may stop accepting Medicare patients.

Congress and the administration need to decide how large a role Medicare will play in any broader deal. Some proposals include increasing Medicare's eligibility age from 65 to 67, asking wealthier Medicare beneficiaries to pay more for their coverage and paying Medicare providers less.

Medicaid does not face any automatic cuts on January 1. Yet, the Supreme Court's ruling on health reform made the Medicaid expansion optional for states, and there is some concern that any cuts in federal Medicaid spending may make governors even more reluctant to expand the federal-state program. Many Republicans favor changing Medicaid into a block grant, where states are given a set amount of money and more freedom to decide who is covered and what benefits they would receive. But the block grant concept is a non-starter with Democrats and the administration.

The National Institutes of Health could see a $2.5-billion reduction in 2013, which means that the agency would "have to halt or curtail scientific research," according to an OMB analysis. Other agencies would see cuts, too. For example, the Centers for Disease Control and Prevention would face cuts of $490 million, and the Food and Drug Administration would see reductions of about $318 million. The TRICARE program for active members of the military system would also face an across the board 2-percent cut. The Veterans Affairs health system, however, is exempt from sequestration.

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