Medicare Sequester Set to Commence March 1

In 2011, when Congress failed to make the so-called “grand bargain” budget agreement with the White House, it agreed to the Budget Control Act (BCA) to obliterate $1.2 trillion in federal spending over 2012 to 2021. In the absence of a traditional, negotiated budget passed by Congress and agreed to by the president, the law will apply blunt, across-the-board percentage cuts without much regard to policymaking. The bill uses “sequestration,” a compelling automatic decreases to most programs at different rates, each portion a separate sequester: 9.4 percent to discretionary military funding, 10 percent to mandatory defense funding, 8.2 percent to non-defense discretionary funding and 7.6 percent to non-defense mandatory funding, according to the Office of Management and Budget (OMB), the executive office that develops and manages budgets and other economic policies for the president. Originally slated to take hold in January, the BCA was postponed to March 1.

Medicare’s sequester inflicts a 2 percent annual cut, mostly to hospital and physician payments. For Medicare parts A and B, that’s $11 billion in year one, according to the OMB. The benefit structure would remain unchanged, and Part D low-income, Part D catastrophic subsidy and Qualified Individual premiums are exempt, according to a November 2011 Congressional Research Service report. For parts C and D, reductions would be made in monthly payments to the private plans that administer them. Reductions would be made at a uniform rate and are not to exceed 2 percent, the report said.

On February 5, President Obama urged Congress to void the indiscriminate cuts of the sequester and instead pass smaller cuts and some tax loophole reforms, moves the President said would be gentler on the economy. The $400 billion in Medicare savings he proposed during December’s fiscal cliff talks were still on the table, a package that includes provider payment reductions, premium hikes and new fees for wealthier beneficiaries.

Impact on Medical Providers and Patients

The Medicare sequester is relatively small, and Medicaid and Social Security are wholly exempt, thanks to lobbying by some members of Congress to protect vulnerable populations, said Rep. Jim McDermott, MD (D-Wash.), ranking member of the House Ways and Means Committee and a member of the House Budget Committee. Dr. McDermott believes Congress will indeed postpone the sequester past its March 1 deadline. “In many ways, providers are dodging the main bullet,” he said. “The real budget fight is going to happen between now and June or July. I have a feeling it’s not going to happen quickly, but it’s going to happen.”

Although talk of military spending is overshadowing Medicare in Washington, health care providers are imploring Congress to take note of the drag the cuts will have on the economy, their practices and their patients’ access to care. The Medicare reductions could lead to more than 750,000 lost jobs in the health care sector by 2021, endangering physician practices and patient access, according to a report released last September by the American Medical Association (AMA), the American Hospital Association and the American Nurses Association. Layoffs added to delays and freezes in hiring, capital projects and other investments would contribute to the losses, the report said.