The compromise legislation that Congress conducted during the last week in July, which cleared the way for raising the federal debt ceiling, could have major implications down the road for the health insurance market, according to a research analysis.

These include potential cuts in the subsidies provided to consumers to buy insurance through exchanges.

Under one scenario, Medicare Advantage could face a 2% across-the-board cut starting Oct. 1, 2013. That would occur if the commission established to impose cuts by November fails to reach an agreement, or Congress fails to act on its recommendations.

The agreement–the Budget Control Act of 2011–passed Congress on August 2 and was signed by the president very shortly afterward. Failure to pass the bill would have shut down the government’s ability to borrow.

In a research note obtained by National Underwriter, Beth Mantz-Steindecker of Washington Analysis said that if the special commission created under the legislation to find $1.5 trillion in savings fails to do its job, “sequestration,” or across-the-board cuts would be mandated.

The other alternative to across-the-board cuts is Congress being able to pass legislation calling for at least $1.2 trillion in savings.

Washington Analysis serves so-called “buy-side clients,” such as hedge funds and institutional investors, and its healthcare analyses are particularly respected by investors.

In her analysis, Mantz-Steindecker said that, “Given Congress’ track record, [sequestration or across-the-board cuts] appears to be the more likely option.”

She said that if the special commission established by the debt agreement fails to do its job, there would be an across-the-board cut to defense and non-defense spending in equal increments.

Under the sequestration scenario, Medicaid, SCHIP, Social Security and veterans payments would be exempted, but not Medicare, Mantz-Steindecker said.

The changes to Medicare would take the form of cuts to providers rather than increased cost-sharing for beneficiaries, benefit cuts or increasing the age of eligibility.

It is estimated that if Congress fails to pass $1.2 trillion in savings, the result could be cuts of up to $300 billion over 10 years.

If Congress were to pass a package of less than $1.2 trillion in savings, the across-the-board cut would be for the difference between what is passed and the $1.2 trillion figure.

This across-the-board cut would affect the federal subsidies to buy insurance on PPACA-mandated, state-level online exchanges, as well as the tax credits small businesses may get for health insurance.

“We recognize that this isn’t an idea that has been recently discussed, but it could be mentioned,” she said.

“Therefore, this could result in fewer purchasers of health insurance via the exchange or, at a minimum, could change the plans that would have been bought,” she said. “Both would impact those diversified insurers weighing participation in the exchanges,” she said.

Mantz-Steindecker bases most of her assumptions of cuts on the work of the so-called “Gang of Six” in the Senate that worked on a budget cut proposal that failed to pass, and on the Deficit Commission proposals of late last year.

Under those scenarios, she said, cuts in Medicare Advantage plans and PBMs “are at low risk.”

Mantz-Steindecker also suggested that Medicaid HMOs could benefit via increased enrollment.

Ideas that the special commission established to propose the changes include reducing the federal government’s contribution to Medicaid via a blended match rate, or reducing the amount state provider taxes can count in the Medicaid contribution.

“Both would further intensify states’ fiscal pressures and could even further encourage expanded use of Medicaid HMOs,” Mantz-Steindecker said.

“Other savings ideas that may be considered involve making it easier for dual eligibles to be enrolled in Medicaid managed care plans, or even mandating their enrollment,” she said.

Under the bill being considered by the Senate today, a bipartisan special commission on deficit reduction would be formed.

Under the bill, by Thanksgiving, the 12-person bipartisan special commission must present a $1.5 trillion deficit reduction package that would be subject to an up-or-down vote without amendment or filibuster.

Under this scenario, all of the same Medicare, Medicaid and healthcare savings proposals discussed in past months (Bowles-Simpson, the Biden group, Gang of Six, etc.) are back on the table, Mantz-Steindecker said.

“The makeup of that commission’s members is important, as it could increase the odds for savings ideas that had less support in the past, such as a dual eligible rebate in Medicare Part D, medical malpractice reform, or reducing the size of federal subsidies for eligible individuals to buy insurance on the exchange,” Steindecker said.

“Raising the age of eligibility, indexing incomes for purposes of cost sharing, restricting first dollar coverage in Medigap and increasing Medicare cost sharing are all serious contenders for savings,” Mantz-Steindecker said.