Congress Should not Increase Health Costs in CR

Congress is currently discussing a number of policy changes to increase Medicare and other health payments. In total, these changes could cost up to $32 billion next calendar year and exacerbate inflationary pressures. Given the current fiscal and economic situation, lawmakers should abandon these efforts or at least identify offsets that would lower net health care spending next year and into the future. 

The Biden Administration recently suggested they were open to an array of payment options being added to the continuing resolution (CR) appropriations legislation necessary to keep the government funded beyond September, the end of the fiscal year. In Congress, legislation was also introduced as a stand-alone measure to increase physician payments. 

However, given high inflation and three years of continuous funding for medical providers amounting to $383 billion throughout the pandemic, Congress should not increase physician payments, and any effort to do so should be paid for by other health savings.

While some health policies are extended every year (so-called "health extenders") and don't have substantial costs, the Administration is pushing other more expensive options that would increase federal health care spending and result in premium increases for Medicare beneficiaries. These include a pause for the Medicare sequester and different physician payment bonuses as well as some pandemic-era bonus Medicaid funding for home- and community-based services.

The most costly health policy being suggested by the Administration is a suspension of the Medicare sequester. The Medicare sequester is a two percent cut to Medicare payments originally imposed in 2013 that was set to expire in 2021. It has been extended eight times and now runs through 2031. It was suspended at the onset of the pandemic but was phased back in at one percent from April to June of this year and has been in full effect since July.

Enacting another suspension after the sequester has already gone back into effect makes little sense. In addition to the $15 billion price tag for one year, pausing the sequester would worsen the financial situation of the Medicare trust fund, which is already projected to be insolvent in 2028. 

Another costly policy contained in the Administration's release is extending a 3 percent physician payment bonus. The physician payment bonus was first enacted in 2020 as COVID relief for physicians and extended last year at 3 percent through the end of 2022. Physicians have been lobbying Congress to continue the bonus to offset a change in how provider payments are calculated -- the change being a long-planned attempt to rebalance physician payments away from some specialty care towards primary care. Such changes are required to be budget neutral, which means some physicians will get cuts and others will get increases.

The original bonus helped smooth the transition to the new payment calculations in addition to their intended pandemic relief. However, elective procedures and in-person visits have normalized, and it's now year two of the effort to rebalance physician payments. Additionally, Medicare's pandemic expansion of telehealth coverage remains in effect. There is little reason to continue these enhanced payments. There has recently been introduced Congressional legislation attempts to blunt two years' worth of the payment changes by giving physicians a 4.42 percent payment increase. 

Cost of Medicare and Medicaid Spending Increases

Policy One-Year Cost
Enhanced Territory Funding for Medicaid $300 million
Medicare-Dependent Hospital Funding $200 million
Add-On Payment for Ground Ambulances $500 million
Add-On Payment for Rural Home Health $150 million
Maternal Visiting Funding (MIEHCV $100 million
Suspension of Lab Service Payment Cuts  $300 million
Cost of Suggested Health Payment Increases  $1.95 billion
Enhanced Federal Matching for Home- and Community-Based Services  $10 billion
Suspension of Medicare Sequester  $15 billion
Physician Payment Bonus  ~$5 billion
Subtotal, Other ~$30 billion
Total Cost of Increases ~$32 billion
Memo: Medicare Beneficiary Premium Increases $3.5 billion

Sources: Congressional Budget Office and Committee for a Responsible Federal Budget. Estimates are rough and rounded. 

The Medicaid home- and community-based funding proposal is to extend a 10 percent federal matching increase that was originally included in the American Rescue Plan. It would cost $10 billion to extend for another year. However, states are flush with Medicaid money, having already seen billions in supplemental Medicaid funding tied to the public health emergency, and further COVID relief is unjustified.

Other extensions, which pre-date the pandemic, include increased Medicaid funding for territories; increased payments or funding for Medicare-dependent hospitals, low-volume hospitals, ground ambulances, rural home health care, and maternal visiting; and suspending cuts for clinical laboratory services. Extending these policies for a year would cost nearly $2 billion.

By boosting health care costs, these changes would also worsen inflation. A 2014 Federal Reserve study suggests sequester suspension alone would increase prices by 9 to 24 basis points. The increases here could potentially boost prices by twice that amount, meaning prices could ultimately be as much as half a percentage point higher as a result. 

If Congress were to enact these $30 billion health extenders, Medicare beneficiary premiums would increase by $3.5 billion due to beneficiaries being responsible for 25 percent of Part B costs.

It is also worth noting that the PAYGO sequester, triggered by passage of the American Rescue Plan last year, would require 4 percent cuts to Medicare spending in addition to other spending programs. However, it will almost certainly be canceled or paused by Congress, as it has never actually been implemented in prior instances. That has not stopped hospital lobbyists from using the potential cuts as a scare tactic to prod Congressional action on the above items.

Ultimately, adding these to the CR or end-of-year legislation without offsetting them is unnecessary and bad fiscal policy. This would also worsen inflationary pressures. There are plenty of offsets available, including equalizing Medicare payments regardless of site-of-care, reforming post-acute care, reducing Medicare Advantage overpayments, and many more. Given the outlook for health care spending and impending insolvency, Congress should be pursuing policies to further lower health care costs and Medicare spending not extending unnecessary relief to doctors and hospitals.