The general freak-out is here: Automatic, across-the-board spending cuts take effect Friday. But amid the panic, one group is quietly breathing a sigh of relief. Health care providers, who have absorbed a series of legislative pay cuts big and small since 2010—and see themselves as the primary target of a major deficit deal—are actually spared the largest hits.
The sequester was designed to exempt the major entitlement programs from the kind of serious pain inflicted on discretionary funding. Medicaid, the federal-state insurance program for the poor and disabled, gets off without a single direct cut. Medicare will endure a 2 percent shave—the equivalent, for many providers, of losing their annual pay raise. New subsidies for health insurance under the president’s health reform law are also untouched.
Meanwhile, the debate over long-term deficit reduction has focused squarely on health spending. During negotiations last year, President Obama and House Speaker John Boehner discussed the possibility of slashing about $400 billion from the health care entitlements. Congressional Republicans continue to call for significant cuts in the programs because of their major role in the country’s long-term budgetary woes. The president, too, has signaled his openness to rein in health spending further, calling for what he describes as “modest reforms” to achieve similar savings to the Simpson-Bowles plan—meaning hundreds of billions of dollars over 10 years. The language, which he has been repeating for weeks, made its way into his recent State of the Union address. “Yes, the biggest driver of our long-term debt is the rising cost of health care for an aging population,” Obama said. “And those of us who care deeply about programs like Medicare must embrace the need for modest reforms.”
Given that debate, the prospect of comparatively mild sequester cuts leaves some health care providers and lobbyists relieved. Although it’s hard to find anyone who sees the sequester as good policy, many providers take solace that it will not aggressively squeeze their cash flow. “This is the least worst bad thing,” says one lobbyist for the nursing-home industry who asked not to be named because his clients publicly oppose the sequester. He, too, dislikes the mechanism, but he worries more about a replacement package.
No provider is enthusiastic about the prospect of a 2 percent across-the-board pay cut, but doctors, hospitals, and nursing homes know they will, for now, be insulated from the kind of dramatic hits facing the defense community (which expects furloughs) and domestic discretionary programs. (The Women, Infants, and Children nutrition program, for instance, may serve 600,000 fewer low-income recipients.) “The alternative could have been worse,” says Eric Zimmerman, a partner at McDermott Will & Emery, who represents a number of Medicare providers. “There’s some measure of consolation in the sequester when you step back and think about what Congress was thinking about.” Two percent hurts, but it’s a cut for which savvy providers have already budgeted.
For many in the health care sector, the last few years have meant an ongoing series of tweaks. Since the Affordable Care Act passed in 2010, legislation has modified Medicare seven times. Some of those changes have been fairly modest, but others have been significant. As Mitt Romney and House Budget Committee Chairman Paul Ryan, R-Wis., were fond of mentioning on the campaign trail last year, that law alone will reduce Medicare spending by $716 billion over 10 years.
Medicaid, a much leaner program, has been luckier so far, but advocates for beneficiaries, states, and safety-net providers are nervous about what could happen in a big “entitlement reform” deal. Although Obama has been more protective of the program lately, he once supported slashing more than $100 billion from Medicaid; and states and providers continue to worry that Washington could decide to save tens of billions of dollars by eliminating so-called provider taxes, which are unpopular among Republicans and some Democrats alike; many states rely on them to boost their federal share of Medicaid spending. Sequestration means Medicaid is safe for now.
“The fact that the agreement that led to the sequester protects the beneficiaries of Medicare and Medicaid is very important and very positive,” says Ron Pollack, president of Families USA, a liberal health care advocacy group. Pollack is no fan of the sequester, but he agrees with many providers that other deficit-reduction proposals could be worse for Medicare and Medicaid.
Even as health care providers express relief that Congress mostly skipped the sector this time, however, they know the future is unwritten. Though the dimming prospects for a major grand bargain reduce the likelihood of dramatic entitlement cuts, health providers worry that their funding will be back under the microscope as Congress mulls a budget and negotiates over the debt limit later this spring. And the increasing likelihood that Congress could enact a permanent “doc fix,” stabilizing physicians’ pay, cheers doctors but worries other providers, whose compensation could be targeted to pay for it. “It’s not like there’s one bullet, and you dodged it,” says Matt Salo, the executive director of the National Association of Medicaid Directors. “It’s a whole lot of bullets, and you’ve got to dodge all of them.”