September 22, 2009
While the bill produced by Finance Committee Chairman Baucus is being portrayed by some media outlets as a "moderate compromise," in reality the government takeover of health care contemplated by the legislation will be far more costly than advertised. The provisions included only in the bill's first few years-virtually all of which are likely to be continued beyond the temporary extensions in the legislation-reveals the full ten-year cost of the bill could approach $900 billion. That higher cost does not even begin to calculate the impact of the Medicare Sustainable Growth Rate (SGR) formula for physician reimbursements on cost and deficit projections:
- The Finance Committee mark does not include a permanent fix to the SGR formula, choosing instead a one-year, 0.5 percent increase in 2010 at a cost of $10.7 billion. However, because the legislation specifies that the 2010 increase shall not be taken into account when determining future year spending targets under the SGR, physicians would receive a 25 percent decrease in reimbursement levels beginning in 2011, and further reductions in 2012 and future years, under the Baucus bill-an action which, given past Congressional actions to override scheduled physician payment cuts, many would view as highly unlikely.
- Adding the nearly $300 billion cost of a permanent SGR "fix" to the Baucus bill's spending level of $856 billion would raise total spending on health "reform" to more than $1.1 trillion-well above the President's promised spending level.
- The $38 billion cost of a long-term SGR fix (based on the specifications in H.R. 3200) in 2019 far exceeds the Baucus bill's projected $16 billion surplus in the last year of the budgetary window. In other words, if the costs of a permanent SGR fix are included, the Baucus bill is neither balanced within ten years or in its tenth year.
- In stating that the Baucus bill could lower federal deficits in the years beyond 2019, the Congressional Budget Office found that its projections "assume that the proposals are enacted and remain unchanged throughout the next two decades, which is often not the case...For example, the sustainable growth rate (SGR) mechanism governing Medicare's payments to physicians has frequently been modified...to avoid reductions in those payments....The long-term budgetary impact could be quite different if those provisions were ultimately changed or not fully implemented."
The lack of a permanent SGR fix raises several key fiscal questions that should be answered prior to the consideration of the Finance Committee legislation:
- Does Chairman Baucus support a 25 percent cut in Medicare physician reimbursements beginning in 2011-as his bill presumes? If he does not, how can he make a credible case that his bill is either deficit neutral or would spend fewer than $900 billion?
- Given that the Baucus bill already includes more than $400 billion in savings from Medicare and Medicaid-and a commission designed to make additional, automatic cuts to Medicare spending in the event that program outlays exceed inflation-where exactly will the cost savings for future SGR "fixes" come from?
- How realistic is the enactment of another Medicare cost containment trigger, given that the existing cap on physician spending in the form of the SGR mechanism has consistently been overridden by Congress?
- Will Democrats propose future tax increases to pay for higher Medicare physician reimbursements?
In addition to the hundreds of billions in additional federal spending required to fix the SGR formula, a series of smaller provisions, if extended for the full 10-year life of the budgetary window, would have a big impact on total spending:
- New five-year, $1.5 billion program for home visitation services;
- Extension of the floor for geographic index for Medicare physician reimbursement through 2012 ($1.1 billion cost, according to the Congressional Budget Office);
- Extension of exceptions process for Medicare therapy caps through 2011 ($1.8 billion);
- Extension of treatment for certain Medicare pathology services through 2011 ($200 million);
- Extension of increased payments for ambulance services under Medicare through 2011 ($100 million);
- Extension of certain Medicare long-term care hospital reimbursement provisions through 2011 ($200 million);
- Extension of payment adjustments for Medicare mental health services through 2011 ($100 million);
- Extension of outpatient department hold harmless provisions for Medicare small rural and sole community hospitals through 2011 ($300 million);
- Extension of Medicare dependent hospital program through 2013 ($100 million);
- Temporary improvements to the Medicare inpatient hospital payment adjustment for low-volume hospitals in 2011 and 2012 ($300 million); and
- Extension of Section 508 hospital reclassifications through September 2011 ($500 million).
While the individual provisions may generate comparatively minor scores for temporary extensions of two or three years, extending all these provisions through 2019 could cost approximately $20 billion through the entire ten-year period. Given the presence of so many budgetary gimmicks-totaling close to $300 billion-in the Baucus legislation, many may consider the Finance Committee bill neither deficit-neutral nor fiscally responsible.
For additional information, contact:
The House Republican Conference Policy Office