COMMENTARY Medicare

Congress Shouldn’t Exempt Medicare From Mandatory Budget Cuts

Oct 27, 2021 3 min read

Commentary By

Matthew D. Dickerson

Former Director, Grover M. Hermann Center

Robert E. Moffit, PhD

Senior Research Fellow, Center for Health and Welfare Policy

Congressional leaders temporarily exempted Medicare from legally authorized cuts under the process of budget sequestration. ATU Images / Getty Images

Key Takeaways

To ensure fiscal responsibility, Congress needs to control the growth of programs that operate on autopilot, known as mandatory spending.

There is no valid reason to delay the Medicare spending cuts through the budget sequestration process.

Now is not the time to suspend a 2% cut in Medicare spending through sequestration that would at least slow, to some extent, the program’s relentless growth.

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The federal budget’s largest programs, especially Medicare, are growing at unsustainable rates. To ensure fiscal responsibility, Congress needs to control the growth of programs that operate on autopilot, known as mandatory spending.

Although most of the congressional debate related to the Budget Control Act of 2011 over the past decade has been about placing caps on so-called discretionary spending for defense and nondefense programs, the law also has helped reduce some mandatory spending.

At the beginning of each fiscal year since 2013, a provision of the Budget Control Act known as mandatory sequestration has prevented a few percentage points of spending that otherwise would have gone out the door. Reductions of Medicare’s $926 billion in annual spending would be limited to just 2%.

Although the process of mandatory budget reductions– sequestration–should be improved to cover more programs and much more needs to be done to control spending, making the cuts through the Budget Control Act has proved so popular that Congress has extended it five additional times.

During the COVID-19 pandemic, however, congressional leaders temporarily exempted Medicare from legally authorized cuts under the process of budget sequestration.

With enactment of the Coronavirus Aid, Relief and Economic Support Act of 2020, lawmakers instead provided for a 20% increase in hospital payments for COVID-19 patients, added beneficiary vaccine coverage with no cost sharing, and “accelerated and advanced” payments to Medicare hospitals.

These special advance payments and the higher COVID-19 reimbursements under the CARES Act were factors as Medicare hospital insurance spending exceeded hospital insurance revenues by a stunning $60.4 billion.

With this package of spending in place, lawmakers exempted Medicare from the 2% budget cuts from May 1 through Dec. 31, 2020.

Subsequent legislation extended this delay in making the cuts through the end of 2021.

But there is no valid reason to delay the Medicare spending cuts through the budget sequestration process. Circumstances have changed since the rapid rise of COVID-19 cases, hospitalizations, and deaths in spring 2020, when Congress provided $150 billion in emergency assistance to hospitals and other medical facilities under the CARES Act.

COVID-19 cases are falling, and so are hospitalizations for the disease caused by the new coronavirus. Based on current data, the Centers for Disease Control and Prevention reports that the decline in related hospitalizations likely will continue.

The Medicare trustees say that COVID-19 itself will not have a long-term impact on the status of the hospital insurance trust fund. In fact, the trustees report that 87% of Medicare beneficiaries will be vaccinated this year, and Medicare hospital providers are on track to repay the “accelerated and advanced” COVID-19 payments. The trustees even project that the Medicare hospital trust fund will enjoy a rare surplus in 2022.

Nonetheless, the Medicare trustees warn that relentless future spending increases in the entitlement program will impose enormous financial burdens on Medicare beneficiaries and taxpayers alike, while contributing to big budget deficits and dangerous debt.

So, given the prospect of a 2% cut in Medicare spending on Jan. 1, 2022, Congress should stand strong in the face of anticipated, intense hospital lobbying and resist any attempt to delay or cancel the sequestration order.

Make no mistake. One-off budget cuts as part of sequestration won’t solve Medicare’s endemic spending problem. Only major reforms would slow Medicare’s spending growth while improving the program for beneficiaries and providers alike.

The most important of these reforms: the transformation of the entire Medicare program into a defined contribution (“premium support”) system. In his system, traditional Medicare, Medicare Advantage, and other private plans would compete head-to-head on a level playing field and beneficiaries would be empowered to pick and choose plans and providers that best serve their personal wants and medical needs.

Such an intensely competitive market system not only would control costs but stimulate innovation that would deliver a higher quality of medical care and superior medical outcomes. In short, it would deliver better value for our Medicare dollars.

Meanwhile, Congress must use the budget sequestration laws already on the books, to restrain the explosive spending contributing to those mounting deficits and that dangerous debt.

Given the pressure on beneficiaries and taxpayers alike, now is not the time to suspend a 2% cut in Medicare spending through sequestration that would at least slow, to some extent, the program’s relentless growth.

This piece originally appeared in The Daily Signal