How Will the New Budget Law Affect Medicare and Medicaid?

Despite news reports implying otherwise, the  Budget Control Act just signed by President Obama does not specifically mention Medicaid.  The act doesn’t mandate any particular cuts to federal spending. Instead, it would require a convoluted series of steps to calculate projected deficits and  sequester funds proportionally, reducing other discretionary spending in the affected categories to make up for the “breach”.  The discretionary spending is divided into security-related and nonsecurity-related categories. This limits the increases in discretionary spending to specified dollar amounts through 2021.

The act specifically addresses appropriations for disaster relief,  federal health care fraud and abuse control efforts, disability determinations by the Social Security Administration and Overseas Contingency Operations/Global War on Terrorism.  The provision that addresses Medicare directly limits cuts in Medicare spending resulting from the adjustment to 2 percent in any year.  If the formula as written in the statute would require cuts to Medicare exceeding 2 percent, the cuts in other nonsecurity spending would have to be increased to make up the difference.

Both houses of Congress must consider a constitutional amendment requiring a balanced federal budget by the end of 2011. The bill also sets a goal of reducing the deficit by $1.5 trillion by the end of fiscal year 2021 and requires passage of legislation to accomplish this goal by January 15, 2012 to avoid a second set of limits.

Does all this sound familiar? Are you  thinking “haven’t we tried this before?” You’re right.  Federal law has required sequestration to limit discretionary spending in an attempt to reduce the deficit since the Balanced Budget and Emergency Deficit Control Act of 1985 (BBEDCA).  Congress has amended BBEDCA several times. The “Pay as You Go” law (P.L. 111-139)  passed last year was supposed to prevent increases in the deficit by requiring excess costs to be balanced out with sequestration orders.  However emergency legislation didn’t count against budgetary effects, and the effects of  “off-budget” spending didn’t either.

The debt reduction bill defines “emergency”. To qualify as an emergency, the need for new budgetary authority must  be unanticipated and necessary to prevent, mitigate or respond to loss of  life or property or a threat to national security.

If the best predictor of future behavior is past behavior, Congress’ past actions do not bode well for any permanent resolution to the deficit problem. According to a statutory formula, the sustainable growth rate, Medicare rates paid to physicians and other professionals were to be cut every year since 2003,  but Congress has repeatedly overridden the formula temporarily. Because the formula remains the same, each year that the cuts are avoided sets the stage for a bigger cut the next year.  If Congress does not act, the formula would require cuts of  30 percent in 2012.

As Jay Nawrocki’s post noted yesterday, we know that cuts to physician payment rates will result in reduced access for beneficiaries, and that’s why Congress has deferred the cuts. What do you think Congress will do about Medicare spending?