How Sequestration Will Reduce Health Care Spending

The Kaiser Family Foundation is out with this helpful brief explaining what the failure of the super committee could mean for health care spending. As a reminder, the Budget Control Act of 2011 includes a sequestration mechanism of cuts that go into effect if lawmakers fail to reduce the deficit by $1.2 trillion over 10 years — the reductions are in addition to the savings already included in the Affordable Care Act, which are “projected to reduce aggregate spending by 6 percent over the 10 year period.”

But if lawmakers don’t produce a proposal before January 15, 2012, “the Director of the Office of Management and Budget (OMB) would calculate the sequestered amounts that would be needed to ensure that savings total $1.2 trillion for FY2013 to FY2021,” including a 2 percent reduction every year from 2013 to 2021 to the provider side of Medicare spending. A report from Avalere estimates that hospitals will bear the brunt of the cuts and could face a 32 percent reduction to inpatient hospital care. Medicare Advantage plans, physicians, nursing homes, and home health agencies would could also be trimmed, though Medicare benefits, the Children’s Health Insurance Program (CHIP), and Medicaid will not be affected.

The sequestration will apply to any mandatory spending not specifically exempted, meaning that health reform provisions like grants to states for establishing exchanges, the public health prevention fund, and mandatory funding for community health centers could all be vulnerable to reductions. In August, Republicans claimed to have identified at least 15 ACA provisions that could be subject to cuts. And that’s not all. As the Washington Post’s Sarah Kliff explains, doctors participating in the Medicare program could also see an additional 27 percent reduction in reimbursement at the beginning of next year as a result of the Sustainable Growth Rate (SGR).

Health care lobbyists are already working over lawmakers to soften the effects of the trigger, to be sure, and if their past success in patching up the SGR is any indicator, the triggers may very well change before any of the cuts go into effect.