‘Deficit Hawks’ Criticize House-Approved SGR Replacement Legislation

Although supporters of legislation to replace Medicare's sustainable growth rate formula describe it as a major step forward for curbing the program's costs, many advocates for reducing the federal deficit have found issues with the proposal, AP/ABC News reports (Fram, AP/ABC News, 4/6).

Background

The House last month voted 392-37 to approve legislation (HR 2) to permanently replace Medicare's SGR. The bill includes several other measures related to health spending, such as funding for community health centers, which serve low-income individuals in every state. The Senate is not scheduled to consider the measure until it returns from recess on April 13. Although a 21% cut to physician reimbursements under the SGR went into effect April 1, CMS last week said that, barring Congressional action, it would not begin processing the payment cuts until April 15.

Cost of SGR Replacement Measure

Overall, the SGR replacement measure would cost about $213 billion over 10 years. The deal would offset about $70 billion of the projected costs over the decade. Roughly half of the possible deal's offsets would come from cuts to hospitals, insurers and acute-care providers. The other half of the offsets would come from cuts to Medicare beneficiaries, such as additional means testing for high-income beneficiaries (California Healthline, 4/2).  

For example, the legislation would:

• Increase monthly prescription drug and medical premiums for higher-income Medicare beneficiaries beginning in 2018, with premiums increasing for more higher-income beneficiaries in 2020 (AP/ABC News, 4/6); and
• Phase out Medigap plans with no Part B deductible for beneficiaries who become eligible in 2020 and beyond (California Healthline, 3/23).

Overall, the deal would add about $140 billion to the federal deficit over 10 years (California Healthline, 3/27).

According to an estimate by former Congressional Budget Office Director Douglas Holtz-Eakin, the bill's beneficiary cuts would decrease Medicare spending between 2026 and 2035 by $230 billion. Holtz-Eakin's projection helped to secure support from conservative GOP House lawmakers for the proposal, AP/ABC News reports.

Deficit Concerns

Meanwhile, advocates for reducing the federal deficit have pointed out that the $35 billion over 10 years in proposed cuts to beneficiaries represent only a small fraction of the $9 trillion Medicare is expected to spend during that period.

In addition, "deficit hawks" have noted that CBO warned about "considerable uncertainty" over long-range predictions for the legislation's ultimate cost beyond 10 years. The advocates have said that Holtz-Eakin's estimate only analyzed the potential savings from the measure and not its overall potential cost.

Further, the advocates have criticized the robustness of the proposed savings, particularly in contrast to programmatic reforms proposed by a 2010 bipartisan commission led by former Sen. Alan Simpson (R-Wyo.) and former White House Chief of Staff Erskine Bowles (D).

Committee for a Responsible Federal Budget President Maya MacGuineas said the proposed savings in the SGR replacement bill "are wimpy forms of important policies" (AP/ABC News, 4/6).