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More Medicare Cuts Coming—But When?

By John Reichard, CQ HealthBeat Editor

January 4, 2013 -- During last month's fiscal cliff negotiations, President Barack Obama floated a proposal for some $400 billion in health care cuts over 10 years. But in the end, only about $29 billion was trimmed from Medicare and Medicaid spending to offset the cost of a physician payment patch and related provisions.

However, it's a pretty safe bet that much bigger reductions to Medicare and possibly Medicaid spending are in the works later this year.

Why? For one thing Republicans are ratcheting up the pressure on the White House to cut spending as part of legislation lifting the debt ceiling, which according to Treasury Secretary Timothy F. Geithner is required by March 1 or so to keep the United States from defaulting on its debt.

March 1 also marks the expiration of the two-month delay in sequestration provisions that require automatic cuts under the budget control law (PL 112-25). As part of that measure, providers are scheduled to take a 2 percent cut in their Medicare payments.

But beyond that, Obama and congressional Republicans have talked about a large scale agreement consisting of entitlement cuts and changes in the tax code that would go beyond the increase in taxes rates included in the fiscal cliff law.

Stung by the failure to obtain anything more than modest spending cuts in the fiscal cliff law, Republicans already have begun framing January and February as a period in which Congress and the White House must come to terms on major changes in entitlement spending.

Republican Sens. Bob Corker and Lamar Alexander of Tennessee said in a joint statement released at a Dec. 28 press conference that "it would be a colossal failure of leadership" if the president doesn't move soon to negotiate on legislation to slash entitlement spending.

"Medicare can't survive when the average working couple retiring at age 65 continues to receive $3 in benefits for every $1 they pay into the program during their lifetimes," the statement said. "It is dishonest for Washington to cover up the true cost of the government services it delivers. No one wants to talk about this. But unless we act, at some point these programs will go bankrupt and services will disappear. The first victims of this Medicare fiscal cliff ... are older Americans, millions of whom have no other way to pay their medical bills."

The pair urged enactment of what they called their "dollar for dollar" program that would reduce the growth of entitlement spending by nearly $1 trillion in exchange for congressional approval of legislation raising the debt ceiling by $1 trillion.

The proposal would revamp Medicare to have private plans compete in the program with traditional Medicare. States would get more power to run their Medicaid programs the way they saw fit. So-called "bed taxes" on providers would be prohibited to keep states from extracting more Medicaid money from the federal government.

On top of that, their measure would gradually raise the Social Security retirement age. And it would "enact a more accurate measure of inflation which both raises revenues and reduces entitlement spending."

But President Obama and Vice President Joseph R. Biden Jr. insisted in selling the fiscal cliff deal to Democrats that they would not negotiate with Republicans over the debt ceiling—implying that they would not agree to entitlement changes and spending cuts in order to get Congress to pass legislation raising the debt ceiling and would, in effect, allow the nation to default rather than be pressured into such changes.

Obama said on New Year's Eve that "I'm willing to reduce our government's Medicare bills by finding new ways to reduce the cost of health care in this country." But "that kind of reform has to go hand in hand with doing some more work to reform our tax code," he added.

In effect, Obama is saying that he'll demand more tax revenue in exchange for Medicare and other health care cuts. That suggests that major changes in entitlement spending aren't in the works any time soon and would await a large scale agreement in the summer or fall.

But the Medicare cuts that would kick in on March 1 under sequestration provisions could be one health care cut that starts sooner than then. And, in fact, many providers have already built those cuts into their budgets, industry sources say, though hospitals are sure to squawk as the sequester draws closer.

But for now, anyway, Democrats on Capitol Hill also seemed poised to defy GOP demands for health care cuts in order to raise the debt ceiling. A senior Democrat aide said "the Republicans have to step up to the plate here." Obama did cut Medicare as part of the health care overhaul, the aide pointed out.

"We'd like to see what Medicare cuts they'd like to do. We know that there have to some additional spending cuts but there also have to be some revenue increases" in light of coming demographic changes stemming from an exploding elderly population.

"We have made promises to the elderly and disabled in the form of Social Security, Medicare and Medicaid. The two parties have to work together to see how those promises can be kept." On top of the health law cuts, Obama has proposed another $350 billion in Medicare cuts. "We've been there. It's time for Republicans to show us their specific cuts."

Republicans also must say how they would offset the cost of permanently fixing Medicare's Sustainable Growth Rate formula for paying physicians, the aide added.

Later this year, a large-scale agreement could include such changes as restrictions on coverage by Medigap plans and combining the Medicare Part A and Part B deductibles into a single deductible. Both Republicans and Democrats have indicated an interest in such changes. And bigger Medicare cuts in line with Obama's fiscal 2013 budget proposal and his coming fiscal 2014 budget proposal, along with a proposal by the Center for American Progress, could also figure into a larger agreement, assuming Republicans and Democrats can agree on tax code changes.

"If I had to bet, I think that Republicans will stand very hard on the debt limit, and it will be a ugly cliff-like thing", says former Centers for Medicare and Medicaid Services Administrator Tom Scully. In the end though an agreement will be reached that delays the debt limit expiration for another six months or so "in exchange for a global agreement on a bigger budget deal that includes tax reform and that includes Medicare reform and some other things," Scully predicts.

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