The second part of the agreement requires an additional $1.2 trillion to $1.5 trillion in debt reduction over 10 years. A new, 12-member bipartisan, joint congressional commission is tasked with recommending the savings by Nov. 23, 2011. Congress must vote on the recommendations before Dec. 23, 2011. The commission can consider reducing discretionary and mandatory spending and/or changes to the tax code. Medicare and Medicaid spending and benefits, as well as other discretionary programs and defense spending, along with revenue, are all on the table for commission consideration.
If the commission fails to achieve $1.2 trillion in savings, or if Congress fails to pass and the President sign the commission’s recommendations, across-the-board spending cuts, known as sequestration, would be mandatory. Fifty percent of these mandatory cuts would come from defense and 50 percent from non-defense spending. Social Security, Medicaid (benefits and provider payments) and Medicare benefits would be exempt from reduction. Medicare provider payments would be limited to no more than a 2 percent reduction each year.
The plan also requires the House and Senate to vote on a balanced budget amendment, but does not link passage with the President’s ability to raise the debt ceiling.
While the President has authority under the plan to ensure the debt ceiling is sufficient to meet the United States’ obligation through 2012, Congress can take the opportunity on two occasions to pass resolutions of disapproval of such action. The President can veto those resolutions; overriding any veto requires a two-thirds vote of each chamber — a relative impossibility.
Based on what was learned during the recent debate, it is unlikely that revenue options will make a significant contribution to reaching the commission’s target. The commission is likely to look to Medicare provider cuts and Medicaid reductions to achieve entitlement savings. Proposals such as those put forward by the President’s Deficit Reduction Commission last year (the Simpson-Bowles Commission) could serve as a menu of options. Under Simpson-Bowles, Medicare Graduate Medical Education and Medicaid provider taxes, in particular, were targeted for steep reductions.
In addition, nothing in this plan addresses the need for Congress to act to avert a 30 percent Medicare physician fee schedule cut from occurring Jan. 1, 2012. The cost of a 10-year fix to that problem is upward of $300 billion. Even a two-year fix could cost more than $60 billion. CHA remains concerned that payments to hospitals and health systems are vulnerable to cuts to offset the cost of fixing the physician fee schedule problem.
While hospitals and health systems are spared Medicare and Medicaid reimbursement reductions in the first phase of the federal debt ceiling/deficit reduction deal, it is nearly certain that providers will be subject to reductions in the second phase, which entails either passage of a deficit reduction commission plan or, failing that, across-the-board spending cuts.
CHA continues to emphasize that hospitals and health systems cannot be viable providers of care under repeated rounds of reimbursement cuts. Once the bipartisan committee is appointed, CHA will develop an advocacy strategy for the fall.