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.