CBO Looks At Potential Medicare Cuts if “Super Committee” Budget Plan Fails

This week is the first official meeting of the so-called deficit supercommittee established by the Budget Control Act of 2011 (P.L. 112-25). The 12-member super-committee, made up of three members of each party from both the House and the Senate, is charged with coming up with a $1.5 trillion deficit reduction plan that would cover the period from 2012 through 2021. The committee’s plan must be approved by Congress by December and enacted into law by January 2012. If the super-committee doesn’t come up with a plan, if Congress doesn’t pass it, or if the President doesn’t sign it into law, then under the terms of the law automatic cuts in federal spending will go into effect.

The automatic budget cuts would be achieved by lowering the caps on discretionary budget authority specified in the the Budget Control Act and by automatically cancelling budgetary resources (a process known as “sequestration”) for some programs and activities financed by mandatory spending. Some programs, however, such as Social Security and Medicaid would be exempt from automatic budget cuts.

On September 12, the Congressional Budget Office (CBO) produced a report noting the estimated impact of potential automatic cuts, if they go into effect. The automatic cuts would be equally divided between defense and non-defense spending, starting in 2013. The cuts would include reductions of 2.0 percent each year in most Medicare spending. The CBO estimates that, under current law, the 2.0 percent limit would apply to approximately $6.1 trillion of Medicare spending over the nine-year period, for a total of $123 billion in savings.

According to the CBO, low-income subsidies and additional subsidies for beneficiaries whose spending exceeds certain levels defined as catastrophic in Medicare’s Part D prescription drug program are exempt from sequestration. (The qualifying-individual program under Part D, which subsidizes the monthly beneficiary premium and cost-sharing amounts incurred by Part D eligible individuals with lower income and resources, also would be exempt.)

The sequestration percentage cannot exceed 2.0 percent for payments made for individual services covered under Parts A and B and for monthly contractual payments to Medicare Advantage plans and Part D plans. Other mandatory Medicare spending for benefits and administrative costs would be subject to the same percentage reduction that would apply to nonexempt mandatory spending.

 CBO also expects that reductions in budgetary resources for certain parts of Medicare would have effects that would offset some of the automatic savings; for example, premiums for Part B of Medicare are set to cover a fraction of that program’s costs, and if those costs are reduced, receipts from premiums will be lower. This could result in $31 billion less collected in Part B premiums through 2021, according to the CBO.