On Monday, the Congressional “Super Committee” failed to reach any agreement on a proposal to trim the Federal Debt by $1.2 trillion over a 10 year period. The committee was formed as a part of the Debt Ceiling legislation passed several months ago. Due to this failure, there will be automatic spending cuts which will occur over the next 10 years. Some of these cuts will happen to Medicare, but what impact does this have for the insurance agent selling Medicare products?
First, it should be noted that the spending cuts will not occur until 2013. Therefore, it is possible that Congress could take some action in the interim. It is difficult for me to imagine this happening with a divided Congress in an election year (and a Presidential election).
Assuming no intervening Legislation passes and is signed into law, the cuts to Medicare will amount to 2% in 2013 to providers. So what is the likelihood that this cut will actually happen and what would it mean if it does occur?
Looking at the likelihood of the cut being allowed to happen, one need look no further than the Sustainable Growth Model (SRG) cuts which are slated to occur to Medicare’s Physician Fee Schedule. It may surprise you to hear that a 27% cut is already written into current law to happen on January 1st, 2012 (5 short weeks away!) How Congress and the President deal with the upcoming “Doc Fix” issue will give clues to how a 2% cut in 2013 would likely be treated.
Historically, Congress and the President have intervened EVERY TIME a cut to the Medicare Physician’s Fee Schedule was required by law and they “found the money” every time to maintain or slightly increase Physician’s fees.
Why would we expect the 2% Medicare provider cut to be treated any differently?
Even in a worse case, if the cuts happen, the Medicare cuts will not affect Medicare’s benefits. The cuts will reduce payments to the providers. The downside here is that some providers may “opt out” of Medicare. Obviously, this is a major problem, but keep in mind that we’re not talking about cuts to Medicare beneficiaries benefits. Any impact would result in decreased choice.
Finally, on the Medicare Advantage side, even assuming the cuts occur, the impact to the MA market would be minimal. Since the reimbursement rates to providers are based on a percentage of Medicare rates (often higher than Medicare rates) the cut would essentially be passed along to the provider. Again, this could create a disincentive for providers to participate in the Medicare advantage market, but I don’t see this as impacting benefits or premiums.
In summary, agents should keep an eye on the “Doc Fix” legislation coming late this year as a harbinger of what impact, if any, may result from the automatic cuts to Medicare triggered by the Debt Ceiling legislation and the Super Committee’s failure to come up with a proposal.