Background: As part of spending reforms included in the Balanced Budget Act of 1997, Congress enacted a sustainable growth rate (SGR) mechanism for Medicare physician payment levels. The SGR mechanism is designed to balance the previous year's increase in physician spending with a decrease in the next year, in order to maintain aggregate growth targets. Thus, in light of increased Medicare spending in recent years, the statutory formula has resulted in negative annual updates. While an imperfect formula, the SGR was designed as a cost-containment mechanism to help deal with Medicare's exploding costs, forcing offsets in some years. Press reports indicate the Democrat majority may soon bring to a vote stand-alone legislation that is not paid for (S. 1776) to repeal the SGR formula.
The Cost: The Congressional Budget Office earlier this year estimated that a full SGR repeal would cost $285 billion over ten years. However, the Administration has already begun the process of "reforming" the SGR by hiding approximately $80 billion of a repeal's cost into the budgetary baseline as "current law"-even though some have questioned the Administration's authority to do so. Therefore, CBO scores S. 1776 as increasing the deficit by nearly $250 billion, though as stated earlier, the full impact of a long-term SGR "fix" approaches nearly $300 billion.
Members may particularly note that because seniors pay for one-quarter of total physician spending through their Medicare Part B premiums, passing S. 1776 would raise seniors' Medicare premiums by more than $70 billion over ten years-on top of the up to 20 percent increase in Part D prescription drug premiums as a result of Democrats' health "reform."
The Strategy: Press reports indicate that the Democrat majority intends to pass S. 1776 as a stand-alone bill in order to help facilitate passage of its broader health "reform" initiative. A CQ Today article noted that omitting an SGR "fix" from the Democrat health "reform" legislation "could free up billions of dollars that Democratic leaders could apply to make other changes in a health care plan"-making it easier for the majority to pass its government takeover of health care. Therefore, some may view a vote for S. 1776 as paving the way for enactment of a government takeover of health care, with all its flaws: More than $800 billion in job-killing new taxes, regulations that will raise premiums for millions of Americans, and creation of a government-run health plan causing as many as 114 million Americans to lose their current coverage.
True Reform Instead: Many Members may support legislation to address potential future SGR shortfalls, provided the legislation is fully paid for. For instance, a Congressional Budget Office report issued last week found that enactment of liability reform provisions-another top priority of physician groups-would reduce mandatory spending on Medicare and other federal entitlements by $41 billion over ten years. These changes, coupled with additional steps to enact modest means testing for wealthy seniors' Medicare premiums, would represent sound fiscal policy and true entitlement reform. Members may also note that the Administration has already proposed nearly $600 billion in savings from Medicare alone, and that less than half of this supposed "waste, fraud, and abuse" would easily finance SGR reform-if Democrats were not insistent that this money should be re-directed to fund its government takeover of health care.