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Despite Claims, “Sequestration” Threatens to Injure Medicare Beneficiaries

[The following post was written by Elizabeth Wessel. Elizabeth is a second year Master of Public Health student concentrating in Health Policy and Management at UC Berkeley.  Prior to entering UC Berkeley, she was a Senior Legislative Assistant for Congressman Mike Thompson, handling Ways and Means Committee issues, specifically national health reform.  She is interested in policy development, analysis and strategy as it applies to delivery system reform.]

Back in August, Congress was contemplating how to address the nation’s worsening financial situation and meet existing financial obligations by raising the federal government’s debt ceiling. Republicans and Democrats struck a deal to offset increased borrowing with equal reductions in federal spending.  The deal called for $1.2T in spending cuts, called “sequestration,” half from domestic spending, and half from defense spending.  Of those rescissions, $123B would come from Medicare (a 2% cut).  At the same time, a special congressional committee, dubbed the “super committee,” was created. The committee is made up of 12 members appointed by the four top Congressional leaders.  If the super committee could agree on some combination of $1.2T in cuts, the automatic sequestration cuts would be replaced.  This infographic from the New York Times shows the history of the process.  Last week the super committee announced they were unable to reach agreement, and the path forward is a bit clearer.

While the super committee’s failure indicates that there will be automatic cuts effective January 2013, it is still possible for Congress to intervene and stop some or all of them.  It is also important to note that the Medicare cuts are to payments to hospitals, providers, and private health plans participating in the Medicare Advantage program, not direct cuts to Medicare benefits.  The intent was to insulate Medicare subscribers from the brunt of the painful cuts. It is illogical to conclude, however, that these cuts will not impact services for beneficiaries at all.

Information from the California Health Care Foundation (CHCF) and Kaiser Family Foundation provides a brief profile of Medicare and its beneficiaries, primarily in California:

  • Medicare is a federal health insurance program covering an estimated 47 million people in 2010, including 4.8 million in California (13 percent of the state’s population).
  • Medicare spending accounts for approximately 15 percent of the federal budget, and continues to grow as the population ages.
  • In 2004, Medicare spent an average of $7,693 annually per beneficiary living in California, which is slightly higher than the national average of $7,439, totaling $31.87 million in California alone (2004).
  • California has the largest number of Medicare beneficiaries of any state.  It is projected that by 2030, California’s population of individuals age 65 and older will be more than double what it was in 2000, a growth rate that is much faster than the national average.
  • Nearly half of California’s beneficiaries live on incomes below twice the federal poverty level ($21,780), and increasingly they are asked to contribute more through out-of-pocket spending, typically paying more than $1300 out-of-pocket annually for medical expenses.

Especially relevant to this discussion is the following graphic from CHCF:

According to a recent Avalere Health analysis, the 2%/$123 billion across the board Medicare spending cuts to providers and insurance plans would break down in the following manner:

  • 32 percent to inpatient hospital care
  • 15 percent to Medicare Advantage plans
  • 12 percent to physicians
  • 8 percent to outpatient hospital care
  • 7 percent to nursing homes
  • 4 percent to home health agencies
  • 3 percent to a small portion of the non-exempt Medicare prescription drug benefits

These cuts will likely hit hospitals and physicians the hardest, which are also facing a 10% Medi-Cal cut, specific to California.  And while the cuts are intended to spare Medicare benefits and beneficiaries, it is far from clear this will prove true.  At the very least, these cuts will likely reduce services available for beneficiaries, impeding access to affordable, effective care.  In California patients are left worrying that they will lose access to their doctors and doctors worrying about how they will be able to continue to serve their patients.

Rich Umbdenstock, president and CEO of the American Hospital Association, said these cuts would hurt Medicare beneficiaries and their families and the cuts would force hospitals to make tough economic choices when providing services to beneficiaries.  In fact, before these cuts were even under consideration, the American Medical Association expressed concerns about the instability of Medicare.  If there’s a bright side, it’s that California hospitals and providers could have experienced much deeper cuts if the super committee had acted. While the sequestration cuts were restricted from making changes to Medicaid, the super committee was not.

Some in Congress have discussed repealing or halting some or all of the cuts, mostly due to concerns over sharp reductions in defense spending. President Obama has already rejected this notion.  Public confidence in lawmakers is shaky, and the continued uncertainty surrounding the budget drives unease in Washington, in financial markets, and on main street, making long-term planning difficult for California hospitals, providers and residents.