How The Sequester Could Affect Health Care

Feb 19, 2013
Originally published on February 19, 2013 5:56 pm

It's looking increasingly likely that $85 billion of automatic federal budget cuts known as a sequester will come to pass if Congress doesn't act by March 1.

Congress and President Obama agreed on the cuts, which will be divided evenly between defense and domestic programs, including health care, back in the summer of 2011 as part of a last-ditch effort to force a deficit-reduction deal and avert a debt limit default.

Daniel Werfel of the Office of Management and Budget explained last week in testimony before the Senate Appropriations Committee: "Agencies would be required to implement the cuts over the remaining seven months of the fiscal year, meaning that in many programs the effective cuts would be closer to 9 percent for nondefense programs and 13 percent for defense programs when compared to what agencies would spend during this period under normal circumstances."

The Obama administration has been arguing for months that such cuts would have, if not devastating, at least highly painful effects on programs that affect real people.

According to a letter to the Senate Appropriations Committee from Department of Health and Human Services Secretary Kathleen Sebelius, the required cuts "would result in about 3,000 fewer inpatient admissions and 804,000 fewer outpatient visits provided in [Indian Health Service] and tribal hospitals and clinics."

Sebelius said the reduced funding would also result in 424,000 fewer HIV tests conducted by grantees of the Centers for Disease Control and Prevention and "2,100 fewer domestic and foreign facility inspections of firms that manufacture food products to verify that domestic and imported foods meet safety standards" by the Food and Drug Administration.

Medicaid and the Children's Health Insurance Program are exempt from the automatic cuts, as are many other safety-net programs and Social Security. But Medicare is not. Well, not completely.

Under a specially negotiated provision, Medicare beneficiaries will not be subject to benefit cuts. But Medicare providers can be docked up to 2 percent.

That has prompted a loud outcry from the health care industry. A joint study funded last year by the American Hospital Association, American Nurses Association and American Medical Association estimated that should the cuts take effect, nearly a half a million health care jobs could be lost in just the first year.

Also not exempt from the cuts is most of the funding for the Affordable Care Act, despite the last-minute efforts of states and the federal government to prepare for next year's rollout of most of the law's big benefits.

A program that will not be cut, however, is the one providing insurance for people with pre-existing conditions. Last Friday the administration announced it would not accept any new applications for the program, to preserve the program's remaining funds until the end of the year. That's when those currently enrolled can transition into new health insurance coverage under the law.

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Now more on how these automatic spending cuts would work and what impact they might have on one huge sector of the economy: health care. NPR's Julie Rovner is here to talk about that. Hey, Julie.


BLOCK: And first, Julie, let's talk about this $85 billion in cuts. Why don't you put that number in some perspective for us?

ROVNER: Well, according to the Office of Management and Budget, if Congress fails to reach a deal before March 1st, which is next Friday, it would be required to order agencies to cut that $85 billion by September 30th, which is the end of the fiscal year. That would be about a 9 percent cut for domestic programs like health care and a 13 percent cut for defense programs.

BLOCK: OK, 9 percent for domestic programs, 13 percent for defense - not a government shutdown, though, when spending for federal programs stops outright.

ROVNER: That's right. And it's an important distinction. Now, we could have a government shutdown at the end of March. That's when the temporary spending bill Congress passed last year runs out. But that's a fight for next month. And it's one of the reasons why some people think that it's likely that these cuts will happen because under a government shutdown, programs, well, shut down. In this case, programs can continue to operate just at a somewhat reduced level. This is sort of a brownout, if you will, compared to a blackout.

BLOCK: And if it's that brownout scenario that you're describing, big question is how will people feel the impact of those cuts?

ROVNER: Well, some people will feel it a lot, some people will feel it really not very much. Now, the administration has been trying to make it feel pretty dramatic. The Agriculture Department has been warning that cuts of this magnitude would require furloughs of inspectors at food processing plants. That could temporarily shut down those plants and cause disruptions in the food supply. Similarly, the Food and Drug Administration says it would have to forgo some 2,100 inspections of domestic and foreign food facilities due to the cuts. And many people who are getting government services now will simply not get them.

According to the Department of Health and Human Services, an estimated 800,000 fewer outpatient services would be provided by the Indian Health Service, 900,000 fewer people would be able to get care at community health center and 500,000 fewer people could get vaccines. Now, how terrible are all of these individual cutbacks? That's not at all clear, and it's not at all clear yet how the public would react to them.

BLOCK: Julie, what about the Affordable Care Act, which is now law; it's in the process of being implemented this year. How would that be affected by the sequester?

ROVNER: That's an interesting question. The administration doesn't seem to have a hard and fast answer, but it seems clear that many of the programs in the law are subject to these reductions even as the federal government and states are scrambling to get things up and ready for next January when most of the big parts of the law take effect. But the thing that many governors are most worried about, that the federal government won't pay its share of the Medicaid expansion, is not affected because Medicaid is one of the few programs that's actually exempt from these automatic budget cuts.

BLOCK: So Medicaid is exempted. What about Medicare?

ROVNER: Medicare patients are not subject to the cuts, but Medicare providers - hospitals, doctors and the like - would be cut by no more than 2 percent.

BLOCK: OK. NPR's health policy correspondent Julie Rovner. Julie, thanks.

ROVNER: You're welcome. Transcript provided by NPR, Copyright NPR.