FAQ: $400 Billion Doc Fix Deal FAQ (H.R. 2)

Status: Congress periodically overrides a 1997 law that attempts to contain the cost of Medicare payments to doctors.  It prevents the cuts from going into effect with legislation called the “doc fix.”  This year, Medicare payments to physicians will be reduced 21 percent if no doc fix passes by March 31st. While Congress normally passes short-term fixes that are paid for, Speaker John Boehner and Minority Leader Nancy Pelosi are attempting to pass a massive package that could increase the debt by more than $400 billion over two decades, according to an estimate by the nonpartisan Committee for a Responsible Federal Budget (CRFB).

Isn’t SGR just a budget fiction?

No. SGR would impose real, immediate cuts in Medicare if Congress doesn’t act.  These are real cuts that are scheduled to go into effect under current law.

How has the SGR been dealt with in the past? What do these “doc fixes” usually look like?

Because SGR was originally intended to bring Medicare costs to a sustainable level, Congress has almost always tried to maintain that spirit by coupling the doc fix with real cuts and reforms elsewhere in the healthcare system, usually through the Medicare program. In fact, the SGR has led to real health care reforms over the years, totaling $165 billion since 2002. An analysis done by the Center for a Responsible Federal Budget (CRFB) indicates that 98 percent of doc fixes have been offset with cuts elsewhere.

But aren’t these doc fix “offsets” usually gimmicks?

No. The same study mentioned above from CRFB estimates that only a fraction of the overall doc fix offsets could be classified as gimmicks.  Past doc fixes have contained small, but important structural reforms to Medicare as well as reductions in other areas of federal spending.

Why is SGR so important?

SGR is currently the only mechanism that forces Congress to make tough decisions on health care entitlements. Congress only acts when it is up against a real, concrete deadline. SGR is also conservatives’ best shot at pursuing real entitlement reforms in an environment where Medicare providers have an incentive to allow such reforms to pass.

Furthermore, conservative lawmakers often rightly complain that much of the federal budget proceeds on auto-pilot with little opportunity or action-forcing mechanisms to force Congress to address mandatory programs. As flawed as the SGR is, it is without question one of those opportunities, and it is interesting that lawmakers are now arguing that it would be an affirmative good if this mechanism was pushed aside. As others have recently asked: Do lawmakers want to repeal SGR because it has been ineffective, or because it has been all too effective in forcing lawmakers to make tough choices?

Is the latest plan paid for?

According the CRFB that the plan would cost $210 billion over ten years, with only $70 billion paid-for, adding $140 billion to the federal debt within this window.

Don’t structural changes to Medicare more than offset SGR in the long run?

While certain changes to Medicare have major long-term savings, H.R. 2 does not contain reforms of this magnitude.  Instead, it appears that the gap between the costs of SGR repeal and the savings from the accompanying offsets only grows in the outyears. As the CRFB points out, advocates of “‘second decade’ theory appear to be looking only at one side of the ledger. They are counting the long-term savings while ignoring the long-term costs.”  The CRFB estimates that H.R. 2 would cost $400 billion in the long-term based on a current law baseline, which doesn’t “assume away” the costs of the SGR repeal itself in the outyears.

Regardless of what baseline used, the fact is conservatives have been burned too many times by signing off on deals that allow immediate spending increases and only promise spending restraint in the long run to trust another such idea.

Putting aside the offsets for a second, aren’t the underlying payment reforms in the proposed bill worth supporting?

H.R. 2 includes small reforms that are far from sufficient to justify the elimination of an important cost control mechanism. The reforms do not eliminate fee-for-service payments. The bill’s changes in provider payments, for the most part, simply consolidate and simplify the multiple “value-based” payment incentives currently underway in Medicare already, and provide a loose outline for possible “alternate payment methods” down the road. It does not include some of the real payment reforms conservatives had asked for, such as balanced billing and private contracting in Medicare.

Every time we punt on SGR, the potential cuts to doctors and the cost of repealing get bigger and bigger, don’t they?

Not necessarily. In fact, projections of full SGR repeal have been getting less costly on both fronts in recent years. In 2012, CBO estimated that a 10-year freeze would cost much more, at $271 billion, and that would have prevented a higher reimbursement cut of 27%.  Today, those costs are much less. CBO currently projects that a 10-year physician payment freeze would cost an estimated $137 billion and physicians would face a roughly 21% reimbursement cut.

Shouldn’t we just get past the SGR so we have more time to work on real reforms?

There is no doubt that Members of Congress and their staffs face significant pressure and are required to devote significant time to addressing the doc fix patches. However, as mentioned above, Congress arguably needs more action-forcing mechanisms like the doc fix, not less. SGR deadlines force Congress to make hard decisions on a consistent basis. Without SGR, Congress will face no pressure to address our growing health entitlement problems until it is too late.

But doesn’t Heritage support the reforms included in the deal?

Heritage has long supported increased means testing in Medicare to require high-income seniors to pay for a greater share of their benefits. It has also supported Medigap reforms to limit overutilization of health care services.

However, the combined savings from means testing and Medigap reforms in the House plan would only save a total of $35 billion in the first 10 years. To put that in perspective, the means-testing plan Heritage has supported in the past would by itself save $538 billion over 10 years. As for Medigap reforms, Heritage has pointed to reforms laid out by the Congressional Budget Office, which would save $53-111 billion. The combined 10-year score for reforms similar to past Heritage proposals dwarfs the reforms included in this deal, as well as the cost of the SGR repeal. Heritage has not supported these reforms in exchange for more deficit spending.

I heard these patches have just turned into logrolling boondoggles for lobbyists…

Like any action-forcing event, there is no doubt that SGR brings K Street out in full force.  But the real cause of a lobbyist feeding frenzy is Congress’ appetite for deficit spending.  Hearing that the SGR is going to be repealed without meaningful spending reductions is music to the ears of lobbyists around the country.

Is there anything else in this deal I should know about?

Yes, the deal has another feature that makes it worth opposing. The deal would extend the Children’s Health Insurance Program, or “CHIP” for an additional two years, and it would do so at Obamacare-enhanced spending levels. This is a major priority for the Left as the program’s funding expires later this year.

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