Automatic Budget Cuts Would Affect Health Programs, Report Finds

In 2013, roughly $11 billion in total spending would be cut from Medicare and millions more from programs under the Affordable Care Act if automatic cuts outlined in the 2011 Budget Control Act take effect as scheduled on Jan. 2, according to a White House Office of Management and Budget report released Friday, The Hill's "Healthwatch" reports (Baker, "Healthwatch," The Hill, 9/14).

Background on Budget Act

The BCA called for a debt panel to develop and pass at least $1.2 trillion in federal spending cuts over 10 years. However, since the 12-member panel failed to reach a deal, the law triggered billions of dollars in automatic cuts -- known as sequestration -- including a maximum 2% reduction -- or $123 billion -- in Medicare spending over 10 years (California Healthline, 8/22).

Under the agreement, Congress exempted Medicaid and the Children's Health Insurance Program from sequester, along with veterans' health benefits and medical care provided by the Department of Veterans Affairs (Reichard/Norman, CQ HealthBeat, 9/14).

OMB Report Findings

According to OMB, the reductions in Medicare spending would come from payments to various health care providers, but beneficiaries would not be directly affected.

However, beneficiaries could feel the effects if the payment cuts lead physicians and hospitals to stop treating Medicare beneficiaries. Hospitals' Medicare reimbursements would be reduced by more than $5.8 billion, while prescription drug benefits would be cut by $591 million, the OMB report said (Weisman, New York Times, 9/14).

Further, the cuts would reduce FDA's budget by 8%, or $318 million, while NIH would face cuts exceeding $2.5 billion, which academics and experts warn could substantially impact medical research ("Healthwatch," The Hill, 9/14).

NIH Administrator Francis Collins said the sequestration would "clearly stretch across all areas" of research, including cancer, diabetes and heart disease, as well as research training (CQ HealthBeat, 9/14).

The sequestration also would significantly reduce federal spending for funding programs under the federal health reform law, such as grants to help states establish the insurance exchanges, which would lose $66 million. In addition, funding for the ACA's prevention and public health fund would be reduced by $76 million ("Healthwatch," The Hill, 9/14).

CMS, which is largely responsible for implementing the law, would see its program management budget cut by $63 million, OMB said.

Other funding cuts projected by OMB include:

• $605 million from the Health Resources and Services Administration;
• $490 million from CDC (Daly, Modern Healthcare, 9/14);
• $356 million from the Indian Health Services;
• $275 million from the Substance Abuse and Mental Health Services Administration; and
• $1 million from the Office of the National Coordinator for Health Information Technology.

According to CQ HealthBeat, the debt agreement exempts several ACA programs from sequestration, such as:

• The Medicare incentive payment program to encourage providers to adopt health IT;
• The Pre-Existing Condition Insurance Plan, or the high-risk pool program;
• The Consumer Operated and Oriented Plan; and
• The Independent Payment Advisory Board (CQ HealthBeat, 9/14).

The report states, "The Administration does not support these cuts, but unless Congress acts responsibly, there will be no choice but to implement them," adding, "No amount of planning can mitigate the significant impact of the sequestration. The destructive across-the-board cuts required by the sequestration are not a substitute for a responsible deficit reduction plan."

Prospects of the Sequestration Debate

The OMB report likely will elevate the debate about the automatic cuts as Democrats and Republicans on the campaign trail decide who will be "to blame for the nation's collision course" with the cuts and "how to best avoid them," the Washington Post reports (Helderman, Washington Post, 9/14).

According to the New York Times, lawmakers and administration officials are hopeful that a consensus can be reached to avert the cuts, but it is unlikely that anything will happen before the November elections. The Times notes that the outcome of the elections also could influence "what any future agreement would look like" (New York Times, 9/14).