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Debt Deal's Shield Against Medicare, Medicaid Cuts Offers Limited Protection

By John Reichard, CQ HealthBeat Editor

August 1, 2011 -- The impact of the debt ceiling legislation on Medicare, Medicaid, and the health care overhaul law may not be as great as some analysts initially feared—but all three could still take significant hits in the coming years.

Even House Democrats suspicious of the agreement expressed relief Monday that the White House negotiated provisions that would exempt Medicaid and limit Medicare cuts in the event a new trigger mechanism requires across-the-board spending cuts.

“I take issue with anyone that defines us as losers” in the agreement, Texas Democrat Sheila Jackson Lee declared after her party’s caucus met with Vice President Joseph R. Biden Jr. to discuss the agreement. “We have fire walls and the protection of Medicare, Medicaid, and Social Security because Democrats did not yield,” she said.

But the deal does not exempt government-funded health care programs from any cuts recommended by a new joint congressional committee and approved by the full Congress. The new panel must develop a package of at least $1.2 trillion in cuts over 10 years in addition to the almost $1 trillion in cuts that would occur immediately under the package. The deal requires the panel to issue recommendations by late November and Congress to approve them by the end of this year, otherwise reductions will occur through trigger provisions for automatic spending cuts that would begin in fiscal 2013.

The House passed the legislation Monday evening and the Senate is expected to act on it Tuesday.

“There’s no limit on what the committee can look at,” said Paul Van de Water, an analyst with the left-leaning Center on Budget and Policy Priorities (CBPP). “I don’t think this question of Medicare cuts is going to go away. I think there is also going to be particular pressure on Medicaid. The Republicans are going to be promoting their block grant, the administration will still be promoting its blended rate” in Medicaid. “And who knows what might be discussed with regard to the health reform legislation. I think that all of the health programs are going to be a major subject of discussion for the deficit reduction committee.”

Democrats claim that millions of Americans will lose coverage if Medicaid converts to a system of fixed allotments through block grants. And many on the left mistrust the blended rate idea. Sen. John D. Rockefeller IV, W. Va., for example, has predicted the blended rate revision would end the Children’s Health Insurance Program (CHIP).

But the agreement appears to fall short of having the impact that analysts estimated the nearly $3 trillion in cuts proposed by House Speaker John A. Boehner, R-Ohio, would. The CBPP said Boehner’s plan would have meant one of three things: immediate cuts to Medicare and Social Security, an end to health coverage expansion provisions of the health care overhaul law, or “evisceration” of the health care safety net program for low-income Americans.

In the final hours before the deal was struck, Republican leaders made it clear that entitlements were going to be on the joint committee’s plate.

Sunday morning on CBS’s “Face the Nation,” Senate Minority Leader Mitch McConnell, R-Ky., said the trustees of Medicare and Social Security have said the two programs are “simply not sustainable for the next generation. So that has to obviously be a part of what the joint committee comes back and recommends to the Congress.”

Van de Water said he doesn’t think health care programs dodged a bullet, saying they very much remain on the firing line. “The deficit reduction committee could still propose some very significant cuts,” he said. A new round of Medicaid cuts going into 2014, when the program is supposed to expand under the health care law (PL 111-148, PL 111-152) by some 16 million uninsured Americans “would be a real potential problem for health reform,” the analyst continued. “The concern is to try to assure that the deficit reduction committee doesn’t recommend any changes that would have significantly adverse effects on health reform, whether that would be big cuts in Medicaid or in any of the subsidies for participants” in the health insurance exchanges to cover the uninsured.

Liberal House Democrats, such as Peter A. DeFazio of Oregon and Eliot L. Engel of New York, said the deal would have a devastating impact on Medicare, expressing doubt that the joint committee would add tax revenues that would blunt the effects of cuts on entitlement programs. “It’s buying a pig in a poke and I don’t like it,” Engel said of the deal. “I have no guarantee that Medicare isn’t going to be decimated by this,” he said.

While critics of the agreement fear the impact of changes developed by a new joint committee, providers are focused on the automatic spending cuts that would occur if the committee process did not work. They say that 2 percent yearly reductions to providers in Medicare would harm beneficiaries and threaten their ability to get timely treatment.

John Reichard can be reached at [email protected].  

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