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Debt Agreement May Deal Glancing Blows to Health Law

By John Reichard, CQ HealthBeat Editor

August 11, 2011 -- The federal debt limit agreement gives opponents of the health care law as many as three chances to strike at its funding. But the odds are that they will be able to deal only glancing blows.

The opportunities come in the form of $900 billion in cuts through the agreement’s caps on discretionary spending; the provision for $1.2 trillion or more in additional deficit reduction to be negotiated by the Joint Select Committee on Deficit Reduction and enacted by the end of this year; and in the automatic cuts that will kick in if the committee can’t agree on all $1.2 trillion in deficit reduction.

With lawmakers now on the hook for trimming at least $2.1 trillion from federal deficits over the next decade, the debt agreement ( PL 112-25 ) creates a powerful dynamic for Republican critics of the health care law to divert its half a trillion dollars in Medicare and Medicaid cuts to deficit reduction and away from coverage of the uninsured.

The health care overhaul ( Pl 111-148 , Pl 111-152 ) is almost inevitably a target of the debt deal, said Robert Reischauer, president of the Urban Institute, a center-left think tank. “I think it puts pressure on it because close to the top of the Republicans’ list will be to repeal the [health care] law, or some lesser variant of it like reduce the subsidies for low-income folks or eliminate the individual mandate.”

But Reischauer and other analysts predict that Democrats on the joint committee will resist such changes. And while some cuts can be expected through trimming discretionary spending and a “sequester” of funds if automatic reductions are triggered, they won’t be large enough to force fundamental changes in the law, analysts said.

Republican critics of the health care law concede as much. “I think people are overemphasizing what this committee is going to achieve,” House Budget Chairman Paul D. Ryan , R-Wis., said Aug. 7 on “Fox News Sunday.” “I don’t think this committee is going to achieve a full fix to our problems because Democrats have never wanted to put their health care bill on the table.”

Discretionary Spending
That’s not to say there won’t be cuts. Dan Mendelson, who served as a top health budget adviser to President Bill Clinton, said that the $900 billion in cuts in discretionary funding could stop increases in funding for studies to identify best medical treatments.

“There is a lot of increased spending on evidence-based medicine” in the health care law, said Mendelson, referring to comparative effectiveness research. “The reform law had a lot of forward-thinking provisions intended to save costs in the long run, but that resulted in spending in the short run” — and those are now at risk, he said. Mendelson is president of the D.C.-based consulting firm Avalere Health.

Personnel at the Department of Health and Human Services also could be reduced through discretionary spending cuts, he said. The department has increased staffing to carry out the provisions of the complex law, he noted. “You can bet that the Republicans will be interested in that kind of spending reduction because it helps to slow down reform.” Reductions could take the form of hiring freezes during which HHS could not fill positions that become vacant as employees move on to other jobs or retire. Mendelson said that during his tenure in the Clinton administration about 5 percent of employees could be expected to leave in any given year. But the net effect would not severely undermine implementation of the health care law, he said.

“Sequestration”—legalese for any automatic cuts triggered under the debt agreement—would not have a big impact on the health care law, said Dean Rosen, who served as top health policy aide to Senate Majority Leader Bill Frist, a Tennessee Republican. Automatic cuts could wipe out up to $1.2 trillion in federal spending but only about half that could be for “non-security” programs—basically non-defense spending. And Medicaid, which is scheduled to expand sharply in 2014 under the health care law, is protected from automatic cuts. Protected too are “advance refundable tax credits”—the subsidies Americans will receive under the health care law to help them meet the requirement that they buy health insurance.

Rosen said some funding under the health care law would be hit by sequestration. A $10 billion fund to promote preventive health care could be cut by 2 percent a year as could subsidies to insurers to cushion any losses they experience from moving into the unfamiliar market in the health insurance exchanges the law creates.

But Rosen, now a partner with the D.C. law firm Mehlman Vogel Castagnetti, agrees with Mendelson that neither discretionary spending cuts nor automatic cuts would strike terribly hard at the health care law. The bigger potential threat, they both agree, is through any agreement produced by the deficit reduction committee that becomes law.

All forms of spending are fair game in such an agreement. But Mendelson said that “the politics of the commission will dictate that anything that is overtly ideological will be hard to accomplish in that context. And clearly repeal of reform is overtly ideological. They are going to be under a lot of pressure to keep the focus on how can we come together to agree on deficit reduction. They will not get agreement from Democrats on repeal of the mandate. That’s just not going to happen.”

“I do think that there will be a discussion of Medicaid,” Mendelson added. While lawmakers won’t trim the 2014 Medicaid expansion by reducing eligibility, they could shave benefits somewhat, he said. “Remember, it includes a lot of long-term post-acute care which is not typically covered in a standard benefit.” And for those eligible for both Medicaid and Medicare, care “is largely unmanaged. I continue to believe that there are significant savings that can be accomplished by improving care coordination for the dual eligibles. That is an area that they should focus on at some point. There are savings there.”

One potential way in which cuts to Medicaid could undermine the health care law is by further reducing already low Medicaid payment rates to providers, making it even harder for Medicaid enrollees to find doctors and hospitals willing to treat them.

But Rosen said “I don’t actually think that cuts to Medicaid that might come out of this committee would significantly weaken the Medicaid program” by the time 2014 rolls around and it’s time for expansion. For one thing, that’s only a couple of years away, leaving relatively little time for provider payment rates to be reduced. “I think that a lot of the effect of some things that are on the table frankly take effect in the out years,” Rosen said. The health care law includes other provisions that could somewhat blunt the impact of new cuts on access, such as added funding for community health centers and for primary care, albeit briefly.

Rosen sees a reconsideration of the 2014 Medicaid expansion coming regardless of what happens with the debt agreement. In other words, he believes that review, which he thinks will occur in a couple of years, was inevitable anyway. Medicaid is a “fragile” base on which to expand coverage because of low provider payment rates and existing access problems that pre-date the deficit reduction deal, he said.

Fundamental reconsideration of the expansion “is very likely because it’s even more clear now that we’re in a very acute situation with regard to the economy and our debt,” Rosen said.

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