Critical Federal Medicare Financing Issues
Abstract: The Congressional Research Service issues analysis of the impending Medicare 2% reduction, the “Doc Fix”, and the “Fiscal Cliff.”
Introduction
The following information summarizes a report by the Congressional Research Service (CRS) on the impact of pending reductions in Medicare payments resulting from the “sequestration” and the sustainable growth rate (SGR) formula for Medicare Part B.
After today’s election, Congress will have to return to Washington and begin to deal with these issues. LeadingAge NY and LeadingAge are engaged in strong advocacy on these issues, and the hope is that Congress will act to address these very serious concerns. The CRS report based on the current snap shot of the “Fiscal Cliff” and the “Doc Fix” only reinforces the need for Congress to take serious action to address these concerns.
Overall Reductions
Eliminating the 27 percent reduction in physician payments and addressing the cuts to Medicare required by the Budget Control Act of 2011 (BCA) (P.L. 112-25) are among the major fiscal issues confronting Congress before January 1, 2013, according to a report by the Congressional Research Service (CRS). CRS estimates that the BCA will result in a reduction in Medicare spending by $6 billion during fiscal year (FY) 2013 with the cuts occurring after January 1, 2013. An additional $11 billion will have to be found to pay for the elimination of the 27 percent reduction in Medicare payments to physicians. Meaning that an additional $17 billion must be found in the next two months to maintain Medicare in 2013 as it was in 2012.
Fiscal cliff
Finding revenues for restoring these items might be a challenge in light of other fiscal issues confronting Congress at the same time. The tax cuts approved by Congress under the Bush administration which include income tax cuts as a result of a reduction in rates, the reduced marriage penalty, repealed limitations on personal exemptions and itemized deductions, expanded refundable credits, and modified education tax incentives are all set to expire at the end of 2012. In addition, the two-point reduction in the Social Security payroll tax is set to expire at the end of 2012, as are a number of temporary tax provisions known as tax extenders. If Congress wishes to restore or extend any of these tax cuts, additional revenue in excess of the $17 billion needed will need to be found to restore Medicare.
Although not expected, if all of the changes that are in effect now went into effect on January 2, 2013, the budget deficit would be reduced by $502 billion from 2012. The changes to the tax code alone, if allowed to go into effect, provide enough revenue to reduce the budget deficit by $400 billion in 2013.
BCA and Medicare
Even if the two percent reduction to Medicare expenditures required under the BCA were to go into effect, the total amount of dollars spent by Medicare would still increase over the next 10 years. This is because as the dollar amount spent on Medicare rises each year, and the amount of the reduction is capped at 2 percent, the dollar amount of the reductions that would be required by the other non-exempt, non-defense programs would fall. During the ten-year period from FY 2012 to FY 2021, the cuts to Medicare increase from $11 billion in FY 2013 to $17 billion in 2021 while the cuts to other non-defense categories fall from $44 billion to $38 billion, according to CRS. While Medicare spending increases annually, the rate of the increase in Medicare decreases, as a result of baseline budgeting and the 2 percent cap in the reduction of program spending.
SGR
The Balanced Budget Act of 1997 (BBA) (P.L. 105-33) attempted to maintain Medicare spending on physician services close to a “sustainable” target level that reflected the growth in gross domestic product per capita, efficiency in delivering health care, and other measures. In the first few years of revisions to physician payments resulting from the use of the sustainable growth rate (SGR) adjustment, the actual expenditures did not exceed targets and the updates to the physician fee schedule were close to the Medicare economic index. In 2002, a 4.8 percent reduction in physician payments applied as a result of the SGR calculations. Every year since then Congress has passed a law that, in effect, applies the current year’s reduction to the subsequent year, which results in 2013 needing a 27 percent reduction to be in conformance with the law. It is not expected that Congress will allow this reduction to go into effect in 2013 and is expected to take action like it has over the decade to prevent such a drastic cut from taking place.
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