Congress to Meet About Looming “Fiscal Cliff” that Includes SGR and Separate Sequestration Medicare Cuts

Congress returns this week before the Thanksgiving Recess to discuss a large number of unresolved fiscal issues, including the 26.5% Medicare Sustainable Growth Rate (SGR) cut and the 2011 Budget Control Act’s (BCA) mandatory sequestration cuts.  The combination of these and other unresolved spending and revenue measures are called the "fiscal cliff."

On December 31, 2012, the Bush-era tax cuts expire, emergency unemployment benefits end, the payroll tax holiday ends (two percent cut to Social Security taxes split evenly between employee and employer), the Alternative Minimum Tax (AMT) modifications end, and a number of other fiscal provisions broadly referred to as the “tax extenders” end.  Concerning these revenue changes, the Congressional Budget Office (CBO) anticipates the expiration of the Bush tax cuts netting $225 billion in new revenue, the expiration of the payroll tax holiday netting $85 billion in new revenue, and the various other tax extenders netting $65 billion in new revenue.  Additionally, removing the emergency extended unemployment benefits is expected to reduce federal spending by $34 billion.  CBO also estimates an additional $18 billion in revenue as a result of provisions in the Patient Protection and Affordable Care Act (ACA) that increase the tax rate on earnings and investment income.  All told, new revenues would total $393 billion a year if all the programs are permitted to expire.

Following closely thereafter, on January 2, 2013 the BCA’s sequestration process -- a series of automatic spending reductions -- will be triggered.  If triggered, cuts totaling $110 billion a year split equally between domestic and defense programs will commence.  These automatic cuts include a 2% cut  to Medicare, including a 2% cut for Medicare payments to physicians.  (Medicaid and the Children’s Health Insurance Program (CHIP) are excluded from the automatic spending cuts).  CBO notes that "Medicare reductions would begin each February (rather than in January, as for other programs) and continue for 12 months (rather than to the end of fiscal year 2021)."  The total unspecified 2013 sequestration cut to Medicare is estimated at $11.065 billion.  Non-Medicare government health spending is also expected to take a significant reduction in the range of 7.8%.

Similarly, Congress has until January 2, 2013 to pass the SGR’s "doc fix," the term used in Washington to describe the series of annual patches to the SGR formula to maintain physician payment levels.  If Congress fails to pass the doc fix then according to the CBO’s estimates, payment rates will drop by 27 percent.  Earlier this summer, CBO described the budgetary impact of a series of options for lawmakers to eliminate the SGR cliff, which means the accumulated difference between the Congressional "doc fix" and the amount of spending allowed by the SGR’s formula. 

If Congress confronts all of these expenditure and revenue issues, they will be dealing with over half a trillion dollars in revenue and expenditures. 

ASA is closely monitoring this situation and has advocated for Congress to take immediate action to thwart the pending BCA sequestration and SGR cuts.  ASA also supports replacing the flawed SGR formula.   

Review the recent ASA Advocacy to Congress on SGR and Sequestration cuts.

Review the Congressional Budget Office Report: “An Update to the budget and Economic Outlook:  Fiscal Years 2012 to 2022.”