All attention in Washington is focused on whether the Super Committee created under the recent deficit and debt reduction act will actually get a deal done before automatic spending cuts go into effect. The panel consists of twelve lawmakers – six from each party and each chamber – and it has been given nearly unprecedented power to cut the projected deficit by $1.5 trillion over ten years.
Although some pundits argue that a last-minute deal is not out of the question, most believe reaching an agreement is a lost cause. An agreement very much turns on tax issues and each party’s ability to concede on long-held views. A blueprint on $1 trillion in spending cuts is emerging and appears to have some consensus on the panel, although how the cuts roll out through departments is yet to be finalized. The two sides also agree conceptually that the corporate tax system is a patchwork of rates, deductions, exemptions and credits that hurts our overall competitiveness and needs to be reformed.
But Democrats are demanding tax increases of as much as $350 billion now and $650 billion later in return for demonstrable cuts to spending, including major trimming of the Medicare and Medicaid programs. Congressional Republicans have always argued no taxes should be part of the deal, but just this week opened the door a little with revenue raisers of as much as $250 billion over time. This week House Speaker John Boehner gave a somewhat warm embrace to limited tax increases.
What could be on the horizon as additional spending cuts to health care? The latest proposals out there include:
- Democrats are willing to cut Medicare by $350 billion: $250 billion would come from provider payments and $100 billion from beneficiary cost increases. Beneficiary cost increases could come in the form of merging Part A and B deductibles and forcing the vast majority of beneficiaries to pay more each year. Republicans have endorsed most aspects here and would like to see actual entitlement reform.
- The panel could further increase costs for higher income individuals in Parts B and D of the Medicare program.
- The panel could move the Medicare eligibility age from 65 to 67 to record savings in the various Medicare trust funds. As we have written, however, such a proposal may not save the healthcare system overall, as it could drive additional Medicaid spending, employer retiree costs, and uncompensated care.
- Democrats would cut Medicaid by $50 billion. About $20 billion of the Medicaid cut would be from increased rebates from pharmaceutical manufacturers, which already were forced to give generously under the Patient Protection and Affordable Care Act (PPACA). If PhRMA gives more on Medicaid, though, it could stop Congress from expanding the federal rebate program to Medicare Part D dual eligibles (or the entire Part D program in some form). Another $13 billion would come from revisions to provider taxes, which is a favorite revenue maximization scheme for states.
- Republicans would cut Medicaid deeper. The House Republican budget proposal calls for a 5 percent cut in federal funding to state Medicaid programs in 2013, 15 percent in 2014, and 35 percent by 2021. The cuts would add up to about $750 billion over ten years. This creates a real issue for states, where Medicaid is already an ever-growing part of state budgets and is crowding out discretionary spending. Certainly the cuts would be unsustainable without major reform of the entitlement nature and generous benefits offered in the program.
We’ll soon know whether the lawmakers on the Super Committee were able to carve up the stuffed government bird or will be the turkeys served up on Thanksgiving Day.