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Debt Limit Deliberations Continue - Medicare Changes in the Mix

Monday, July 25, 2011

Updated: July 25, 2011, 3 p.m.

As the August 2 deadline to raise the debt limit approaches, negotiations between congressional leaders have become more heated.  With the fluid and fast-moving nature of the negotiations, ASA will continue to update this page with the latest developments.

On Friday, July 22, House Speaker John Boehner ended direct negotiations with President Barack Obama on a large $4 trillion deficit reduction package when the two sides reached an impasse on the amount of revenue increases to include in the agreement.  After President Obama and Speaker Boehner held dueling press conferences on Friday evening, Speaker Boehner chose to begin direct negotiations with U.S. Senate leaders on a new package to raise the debt ceiling.  Since those negotiations began, two new plans have come to the forefront.

House GOP Plan:

On July 25, the House Republican Caucus released a new plan similar in many ways to the original McConnell-Reid Plan proposed last week.  The plan calls for a two step process by which the debt limit would be increased and Congress could reach agreement on reducing government spending.  The first step would raise the debt ceiling by up to $1 trillion and cut spending by the same amount over ten years.  Step two would establish a 12 member joint committee of Congress consisting of three members from each party in each chamber that would be instructed to create a plan for additional deficit reduction of $1.6 to $1.8 trillion dollars.  If the committee’s plan and a Balanced Budget Amendment passes Congress, the President would be able to request a debt limit increase of $1.5 trillion which would be subject only to a “resolution of disapproval” process similar to the one initially proposed in McConnell-Reid. If this plan passes, ASA will be closely monitoring step two to ensure that physician payment cuts are not included in a broader deficit reduction plan.  Click here to see presentation slides presented by Speaker Boehner to House Republicans.  Click here to read the actual legislation being proposed and click here to read a section by section summary of the legislation. 

Reid Plan:

On July 25, Senate Majority Leader Harry Reid released a new plan that would cut spending by $2.7 trillion over ten years and raise the debt ceiling by the same amount.  The plan includes no tax increases or entitlement reform.   Included in the plan is $1.2 trillion in discretionary defense and nondefense spending cuts, $1 trillion in anticipated savings from winding down the wars in Afghanistan and Iraq, $400 billion in savings from reduced interest on the national debt, and $200 billion in cuts in non-health mandatory spending over the next ten years.  President Obama expressed support for the Reid plan.  Click here to read an outline of the Reid plan.  Click here to read the actual legislation being proposed. 

It is uncertain which, if any, of these plans has a chance of passing both Houses of Congress.  ASA will continue to follow and provide updates on developing debt limit/deficit reduction proposals. 

Original Post Published July 19, 2011:

President Obama and congressional leaders continue discussions aimed at reaching agreement on raising the federal debt limit, the legal maximum that the federal government is permitted to borrow to finance its operations, and addressing the federal budget deficit. In addition to ASA’s ongoing outreach to key lawmakers and staff about Medicare payments for anesthesiologists, ASA is continuing to follow deliberations regarding developing debt limit/deficit reduction proposals.  

U.S. Treasury Secretary Timothy Geithner has projected that on August 2, the United States will reach the debt limit. The current debt limit is $14.3 trillion, approximately four times the entire annual federal government budget of $3.2 trillion. Congressional action will be required to extend the limit to prevent the U.S. government from reaching the borrowing maximum and subsequently “defaulting.”

A default occurs when the federal government reaches the debt limit, is unable to continue borrowing and lacks sufficient funds to meet legally mandated fiscal obligations.  These mandated fiscal obligations include items such as Medicare payment to physicians, Social Security payments, payments on interest on existing debts, and federal employee salaries. While there is debate over the technicality of whether the federal government would go into immediate default if the debt limit is not increased by August 2, or if the default would take time to occur, there exists the potential for far reaching implications. 

Observers have suggested that should the United States government default, the credit rating agencies would likely downgrade the United States’ bond rating which would increase interest rates for future government borrowing. Some argue failing to raise the debt ceiling and the subsequent default would plunge the American economy into a double dip recession that would take decades to escape from. Some others believe a default would have little discernible impact on the economy.   

Congressional leaders and the President have been working towards a deal that would increase the debt limit by $2.4 trillion - an amount sufficient to avoid additional Congressional action until after the 2012 elections. While the main focus of the negotiations has been on cutting spending, the President and Democratic leaders have requested revenue (tax) increases be included in any deal – a non-starter for many House Republicans. The President wants a broader deficit reduction package including spending cuts and revenue increases totaling in the $4 trillion range as part of the debt ceiling increase.  

While a number of groups have been pressing for a deal to reduce the deficit and raise the debt ceiling, most proposals have come up short having failed to garner sufficient attention and support. Currently, three proposals appear to have moved to the forefront of the debate. 

"Cut, Cap, Balance" Republican Plan -

This week, Republicans in the House and Senate plan to force votes on legislation that would “cut, cap, and balance” the federal budget as part of a debt ceiling increase.  The legislation would increase the federal debt limit by $2.4 trillion if the House and Senate pass by two-thirds majorities (a constitutional requirement) a balanced budget amendment to the United States Constitution and thus send the amendment to the states for ratification.  The legislation would cap annual federal spending at 19.9 percent of the United States gross domestic product (GDP) by 2021 and would cap discretionary spending for fiscal year 2012 at $1.019 trillion. The 19.9 percent cap on annual federal spending could lead to significant cuts in the Medicare program and may include physician payment cuts. 

While this legislation is anticipated to pass the House, its future in the Senate is uncertain and President Obama has threatened to veto the legislation.

“Gang of Six” Plan -

On July 19, a bipartisan group of six Senators released a proposal that would increase the debt limit and reduce the federal deficit by $3.7 trillion over ten years.  Immediately after its release, the plan received praise from some Republicans and Democrats in the Senate.  The plan uses a two step legislative process: 1) an initial bill that provides immediate deficit savings of $500 billion and 2) a process for a second bill to enact broader reforms and deficit reduction. The plan calls for cutting discretionary and entitlement programs as well as tax reform, but leaves the details of these changes up to the committees of jurisdiction. Of particular note to physicians, the plan calls for permanent reform or replacement of the Medicare Sustainable Growth Rate (SGR) formula – possibly through a 10-year freeze - and medical malpractice reform. The 289 billion dollar cost of reforming or replacing the SGR formula would be offset by health savings to be found within Medicare. Overall, the plan requires $600 billion in savings in the Medicare program to be found.  Any bill dealing with revenues must begin in the House, and Senate Majority Leader Harry Reid (D-NV) believes there is likely not enough time to clear such a deal.

Click here to read an overview of the plan. 

Click here to see how the new plan compares to the Fiscal Commission plan.  

"McConnell-Reid" Plan –

With a bipartisan solution on a broader deficit reduction deal appearing unlikely prior to the August 2 deadline, Senate Minority Leader Mitch McConnell (R-KY) has proposed a plan with Senate Majority Leader Harry Reid (D-NV).  This plan, commonly referred to as the ‘McConnell-Reid plan’, would give President Obama the authority to request a debt limit increase and would give lawmakers the ability to vote on approving or disapproving the move. If Congress rejects the debt limit increase proposed by the President; the increase would still go into effect unless two-thirds of Congress overrides the President’s veto of the disapproval. In addition, the plan would establish a new special debt committee of twelve members of Congress, six Democrats and six Republicans, to propose a broad deficit reduction package by a specific date that has yet to be determined. Any deficit proposal created by the special debt committee would need only a simple majority seven votes to pass the committee and head to the floors of the full House and Senate for consideration. Additionally, any deficit plan passed by the special debt committee would receive fast-track status which could avoid the normal amendment process.  Accompanying this plan’s framework, Senators McConnell and Reid are looking to attach $1.5 trillion in spending cuts. 

This plan is considered “Plan B” to avoid default if a broader deficit reduction package (Plan A) is not reached in time. While the plan is likely to pass the Senate, the likelihood of passage in the House is far from certain. Conservative Republicans in the House have expressed opposition to this plan. The plan will either need to be adjusted to make it more palatable to these individuals or other House Democratic and Republican members would have to unite behind the plan to get it passed.  

There remains much uncertainty surrounding the debt limit increase. ASA will continue to monitor negotiations between congressional leaders and the White House and use our voice as appropriate in the debate. ASA remains particularly interested in the implications of any proposal that would impact the Medicare program and specifically, Medicare spending on physician services.



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