This brief provides an overview of the deficit reduction process set forth by the Budget Control Act signed into law on August 2. The act increased the US government's debt ceiling, and provided for spending cuts—producing a total of $2.4 trillion in spending reductions over the next decade. This brief evaluates which option—sequester or Joint Committee recommendations—would be better for neurologists, examines previous debt reduction proposals as well as recommendations that have been already submitted to the Joint Committee, and, finally, discusses potential implications of the debt agreement for neurology.
The debt ceiling needed to be raised in order for the government to meet its financial obligations. The Budget Control Act sets forth a process to raise the debt ceiling and reduce net federal spending over the next ten years.
Under the act, the debt ceiling was raised immediately by $400 billion and by an additional $500 billion on September 21. The raise in debt ceiling was balanced with $1 trillion worth of cuts from caps on discretionary spending that will stay effective over a ten-year period.
Moreover, the Act created a new congressional committee—the Joint Committee on Deficit Reduction—and charged it with proposing recommendations on how to reduce the deficit by an additional $1.5 trillion over ten years. The Joint Committee has to make its recommendations by November 23, 2011. Congress will have to consider these recommendations in an up-or-down vote by December 23, 2011. If the Joint Committee fails to report its recommendations, sequestration would be triggered automatically. Sequestration is an across-the-board cut of "budgetary resources for (...) programs and activities finance by mandatory spending" (CBO, 2011). If triggered, this automatic across the board cut would translate to a 2 percent annual cut to Medicare from 2012 to 2021
The automatic trigger was included to motivate the Joint Committee members to compromise on policy that would reduce the deficit and meet the required $1.5 trillion in cuts. The hope was that both sides would compromise to avoid draconian cuts particularly to two important programs: the military and Medicare.
The automatically triggered 2-percent cut to Medicare would result in $10 to $15 billion cuts annually for the next 10 years. These cuts would apply mostly to Medicare providers because Medicare beneficiaries are exempted by the law, as is the entire Medicaid program.
The Joint Committee recommendations, on the other hand, will almost certainly result in cuts to a wider range of health care programs and stakeholders, including both Medicare and Medicaid, because its recommendations are not restricted by law. Moreover, the committee has the authority to recommend more than $1.5 trillion in savings—and an incentive to do so—since increased savings would help reducing the federal debt as a share of the GDP.
The Joint Committee panel consists of six members of the Senate and six from the House equally divided between party lines. The Joint Committee requires the support of seven committee members in order to advance its recommendations to Congress for an up-or-down vote.
The committee appointed Mark A. Prater as its staff director. Prater, a tax lawyer, served previously as a Republican counsel on the Senate Finance Committee and has been recognized for his work on the 1997 budget agreement under President Clinton that led to the enactment of the federal health insurance for children. The presence of a tax expert might suggest that committee recommendations will include tax reform.
As for committee members, Rep. Chris Van Hollen (D-MD) and Sen. Jon Kyl (R-AZ) participated in previous unsuccessful debt-ceiling talks lead by Vice-President Biden, Sen. Pat Toomey (R-PA) opposed the current debt compromise, while Sen. Robert Portman (R-OH) previously worked on budget-related issues for the Bush White House. Most importantly, four committee members—Sen. Max Baucus (D-MT), Rep. Xavier Becerra (D-CA), Rep. Dave Camp (R-MI), and Rep. Jeb Hensarling (R-TX)—served on the White House bipartisan commission on fiscal responsibility that in December 2010 proposed recommendations on how to reduce the budget deficit by $4 trillion.
The recommendations from the bipartisan commission on fiscal responsibility were just one of many debt reduction proposals introduced in 2010 and 2011. These previous proposals—including the fiscal commission plan, Domenici-Rivlin plan, and the House Republican budget—will most likely serve as models for the Joint Committee, given the short time it has to develop its recommendations.
Based on review of the previous proposals, the Joint Committee's recommendations might address the sustainable growth rate (SGR) formula; reform medical malpractice law; increase cost-sharing or beneficiaries' premiums; as well as test a "premium support" model either in Medicare or in the Federal Employees Health Benefits program. In addition, we could expect a variety of policies to reform Medicaid, increase pharmaceutical rebates, reduce payments for medical graduate education, and expand pilot projects focused on new payment models.
For more information please see Table 1.
Before the Joint Committee held its first meeting, the Committee for a Responsible Federal Budget—a bipartisan organization of budget experts—sent a letter encouraging Joint Committee members to increase the net saving target from the mandated $1.5 trillion to at least $3 trillion. Also, a coalition of leading health care companies and organizations—the Healthcare Leadership Council—sent its recommendations that included transforming Medicare into a private exchange program, increasing the Medicare eligibility age, and implementing a Medicare cost-sharing structure. Moreover, Medicaid directors proposed reforms for dual eligible beneficiaries and share-saving arrangement between states and federal government rewarding better coordination of care.
Most recently, President Obama presented his plan for economic growth and deficit reductions. The President's proposal builds on recommendations from both the White House bipartisan commission on fiscal responsibility and the recommendations from the Medicare Payment Advisory Commission (MedPAC)—an independent agency established by the Balanced Budget Act of 1997 to advise the US Congress on issues affecting the Medicare program. According to the administration, the president's recommendations would save approximately $320 billion in health care spending, however most changes will not be implemented until 2017.
Under the president's proposal, health care cuts would mostly come from reducing Medicare coverage of bad debts, reducing the Indirect Medical Education (IME) add-on payments, ending add-on payments for providers in low-population states, requiring rebates from drug manufacturers for Medicare Part D, eliminating payment updates for certain post-acute care providers in skilled nursing facilities and reducing the differences in payment for treatment of specific conditions treated in skilled nursing facilities and inpatient rehabilitation facilities. The proposal also includes recommendations that would increase Part B and Part D payments for new Medicare beneficiaries.
Although the president's proposal introduces a number of additional health reforms, some analysts caution that it might not be enough to slow the growth in health care costs.
All major proposals released in 2010 and 2011 incorporated Medicare and Medicaid savings as part of the strategy to reduce the national deficit. There should be no misunderstanding that cuts to the Medicare and Medicare programs are inevitable, especially since the committee is expected to cut more than the mandated net savings target of $1.5 trillion in order to reduce the debt to a share of the GDP.
If the Committee fails, a $15 billion across-the-board cut to Medicare providers will be triggered. But if the committee succeeds, health care cuts could be even deeper and will negatively affect the entire Medicare and Medicaid programs.
In addition to cuts mandated by the Budget Control Act, the almost 30-percent Medicare physician payment cut—calculated from the sustainable growth rate formula (SGR)—is set to go into effect on January 1, 2012. The Joint Committee provides a forum for SGR reform but, according to CBO calculations, a long-term SGR repeal would cost an estimated $300 billion in federal spending. If committee members were to repeal the SGR, they would have to redirect these costs by increasing the amount of cuts elsewhere within the system. Given that the committee is expected to increase the mandated net savings target, redirecting an additional $300 billion will be a difficult task.
Instead of repealing the SGR altogether, the Joint Committee might recommend smaller cuts to a fraction of the physician community. In fact, these sorts of cuts have already been discussed. For example, in its initial discussion about draft recommendations to Congress, MedPAC staff proposed introducing three years of 5.9-percent cuts to physicians in all specialties other than those classified as primary care by the Affordable Care Act. The AAN is strenuously fighting this recommendation based on the fact that the type of care trying to be incented is provided frequently by a small set of specialty physicians that treat more complex cases.
The Joint Committee might also recommend reducing Medicare's support for graduate medical education (GME), which, according to the national commission on fiscal responsibility, could save $60 billion through 2020. The nation already is facing a risk that there will be too few positions to train all medical school graduates due to consequences of the payment cap, imposed by Congress in 1997, on how much financial support Medicare could provide to GME programs. Additional reductions of Medicare's support for GME could exacerbate shortages in neurology workforce already reported.
Finally, recommendations from the Joint Committee might transform Medicare and Medicaid programs as we know them. Neurologists might find themselves caring for an older population of Medicare beneficiaries and being reimbursed based on patients' outcomes, rather than on the volume of provided services.
Since opening the Washington, DC, office in 2005 and creating the federal political action committee BrainPAC in 2007, the AAN has had a daily presence on Capitol Hill. Between AAN members or staff, we have visited with all of the Joint Committee members, some very recently. BrainPAC has contributed multiple times to seven of them and AAN Congressional Affairs Representative, Derek Brandt, is a constituent of Rep. Van Hollen.