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The Debt Ceiling Deal Explained: Part 2, What it means


Yesterday we looked at what is actually in the complicated deal to raise the debt ceiling. Today we follow up on that by looking at what the deal means for health care and the economy.  

What the deal means for health care

In the initial round of cuts, health care was left more or less untouched. In the next round, the fate of Medicare, Medicaid, and the Affordable Care Act are in the hands of the super committee.

What the Committee might consider
Suzy Khimm at the Washington Post has a must-read post on five cuts the commission might make to Medicare or Medicaid. Here’s the list (she provides great explanations of each, so we really suggest reading the whole post):

  1. Raise the Medicare eligibility age, increase premiums for wealthy recipients, and increase deductibles and co-pays
  2. Give states more leeway in Medicaid to scale back eligibility and benefits, as well as payments to nursing homes
  3. Improve care coordination between Medicare and Medicaid
  4. Slash prescription drug payments
  5. Cutting Medicare provider payments

Khimm doesn’t mention one other cut the committee might consider– changes to the Affordable Care Act. One of the debt ceiling agreements being floated earlier this month would have repealed health reform’s longterm health insurance plan, the CLASS Act, to save $86 billion. Republicans in the House have also voted to defund the Act’s $15 billion Preventative Health Fund, a move that was blocked by Senate Democrats. It’s possible that these major (negative) changes will pop up again in the committee’s negotiations.

That’s not to say that changes the committee makes will necessarily be that bad. Health economist Austin Frankt of the blog The Incidental Economist has a list of suggestions for reducing government health care spending without a negative impact on health.

What happens if the committee’s plan is rejected, and the trigger is umm… triggered

Medicare: The only change the trigger would make to Medicare is to cut payments to providers by 2%. Hospital lobbyists are complaining that this could push doctors out of the program. But really a 2% reduction is not that much. The bigger problem is what the debt ceiling deal doesn’t address:

Much more menacing than the 2 percent cut is the simultaneous threat of a 29.5 percent cut to their Medicare payments if Congress doesn’t alter the Sustainable Growth Rate. Better known as the “doc fix,” the adjustment has been required almost every year since Congress established an unworkable formula for Medicare reimbursement in 1997. If the current political climate causes lawmakers to forgo the annual patch, payments to doctors would drop so low that many would be forced to stop seeing Medicare patients.

Fixing the problem for 2012 alone could cost $12.1 billion, according to the Congressional Budget Office. A 10-year fix could top $358 billion — a tough sum to scrounge up when Congress is searching for cuts in the trillions.

Medicaid: Exempt from the trigger.

Health Reform: The Affordable Care Act would come out in relatively good shape. Half the people newly covered under the ACA will be through Medicaid, which is exempt from cuts. The money to help low income people pay for premiums on the exchanges would see no cuts as well.

But as Washington Post blogger Sarah Kliff points out, the ACA is not untouched under a trigger:

What could take a hit, however, are the reform law’s cost-sharing subsidies, Jonathan Cohn points out at The New Republic. That is money meant to offset the out-of-pocket costs for lower income Americans. But, like any other budget cuts in the trigger, the cut would be a trim and not a wipeout.

The general sense among health policy experts is that funds to implement the Affordable Care Act, alongside grants to establish new programs, are also fair territory for budget reductions.

For many key components of the health reform law – things like the health exchanges, insurance reform, and new prevention programs – much of the funding has relied on grants flowing from the Obama administration. A small cut on the federal level could, for example, throw a wrench in the plans for states looking set up exchanges, particularly in cash-strapped states. So while the cuts aren’t expected to be huge, they could still have an impact.

Is the debt ceiling agreement a good deal?

We agree with a recent post by Jonathan Cohn of the New Republic: Obama and the Democrats did a good job of protecting the most vital programs and the most vulnerable populations, but the overall structure of the deal sucks:

When you decide to reduce the deficit by $2.4 trillion over ten years, with little chance for including new revenue as part of the package, you’re going to end up cutting spending in some regrettable ways. No amount of last-minute negotiating was going to change that.

Republicans deserve blame for pushing us to the brink of default by refusing to include any increased taxes, even on the very wealthy. But Obama and the Democrats deserve blame for allowing Republicans to use the debt ceiling as a bargaining chip instead of demanding a clean debt limit increase without conditions (or as Jon Stewart points out in the clip above, they could have included it as part of the extension of the Bush tax cuts back in December).

There’s also the question of why, in the middle of a weak economy, Congress is so focused on deficit reduction and not unemployment. Democrats could have demanded that the deal address addressed both problems. Spending on short term stimulus now to get people back to work would help the economy grow faster, meaning smaller deficits down the road.

Not only was the debt ceiling deal disappointing because it contained only spending cuts, it was a missed opportunity for President Obama to force the Republicans to do something about jobs.

{ 1 comment… add one }
  • Julia August 17, 2011, 11:43 am

    Great post Rob- very informative about what this all means for healthcare.

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