Committee for a Responsible Federal Budget

A Gimmick on the Rise

Jan 26, 2012 | Health Care| Other Spending

Update: The American College of Physicians has also called for eliminating the SGR and the sequester and partially paying for them with war savings. To their credit, though, they propose a number of other scoreable savings options like having uniform cost-sharing for Parts A and B of Medicare, allowing Medicare to negotiate drug prices, accelerating the health insurance excise tax or limiting the health exclusion, and enacting tort reform. Also, they would require CMS to reform the payment system after five years to align payments with value.

You know those budget gimmicks we talked about in our paper yesterday on what the Conference Committee should do with the extenders? Number one on the list of gimmicks we warned about was using savings from the drawdown of the two wars to "pay for" new priorities. This is a flagrant budget gimmick since it tries to take credit for a policy that is already in place.

Lo and behold, more lawmakers seem to be willing to use war savings to pay for a permanent SGR fix.

If allowed to happen, the SGR would cut Medicare physician payments by 27 percent starting in March and possibly by more in future years if Medicare spending exceeds specified targets. The cost of averting these cuts and freezing payments for ten years is nearly $300 billion, so Congress has usually preferred to go with shorter-term extensions. Still, they have generally been good about paying for doc fixes, having done so either fully or in part for 2006, 2008, 2009, 2010, last year, and the first two months of this year

Cost of Various SGR Replacements (billions)
Option 2012-2021 Cost
0% Annual Update (Pay Freeze) $294
1% Annual Update $338
Update with Medicare Economic Index $354
2% Annual Update $385

Note: Costs adjusted to reflect the $4 billion extension that was already passed.

Using war savings to pay for a permanent doc fix would be an absolute reversal of a consensus that has emerged in the past five or so years about at least partially offsetting annual doc fixes. Not offsetting the doc fix for a year-long extension would be bad enough, but this would not only worsen the deficit, it would also remove barriers that would force Congress to revisit alternate ways of reimbursement in Medicare to better promote quality over quantity of care. It would also remove regular speed-bumps that would remind lawmakers about the need for more comprehensive health care reforms. Simply turning off the SGR would be problematic for our deficit and for health care spending overall.

It is clear that in the era of pay-fors, Congress is still looking for the easy way out. False offsets from war spending can easily attract the attention of lawmakers (just look at the President's plan to use war savings for infrastructure spending in the State of the Union), but they must avoid doing so because it could put the country in a deeper fiscal hole.