Note: This blog has been updated from its original posting to include the CBO score of the Senate Republican proposal.
With the current "doc fix" set to expire at the end of this month, Congress is scrambling to avoid the 24 percent cut to doctors' payments set to occur under the Sustainable Growth Rate (SGR) formula. Rather than settle for a temporary fix, this time Congress is looking for a permanent solution. A bipartisan, bicameral proposal currently under consideration would create a new payment formula designed to offer stability to physicians and reward quality over quantity. Yet Congress cannot agree on how to pay for the $140 billion cost of the bill, and many in Congress don't want to pay for it at all.
With health care costs expected to grow rapidly as the Baby Boomers retire, SGR reform should be seen as an opportunity to truly bend the health care cost curve. A recent proposal from Mark McClellan, Keith Fontenot, Alice Rivlin, and Erica Socke in Health Affairs, for example, suggested a package of savings that would include bundling payments to encourage coordinated care, encouraging competition to set market prices, restricting pricy Medigap plans, retooling Medicare's cost-sharing system, and increasing means-tested premiums to help pay for SGR reform.
Unfortunately, none of the proposals in Congress would take this approach. As we explained yesterday, the House Republican bill would pay for permanent SGR reform with temporary savings from delaying the individual mandate. This would reduce the deficit in the first decade by about $45 billion (including interest), since repealing the mandate would increase the number of uninsured and reduce the number of individuals collecting Medicaid or exchange subsidies. However, over the long run, this bill would add to the deficit, likely by over $200 billion in the second decade.
House Democrats reponded to this bill with one that relies on a far bigger gimmick – the war spending gimmick. As we've explained numerous times before, capping war spending at levels consistent with the troop drawdown that is already planned does not represent new savings, but it appears to do so due to a quirk in CBO projection methods that forces them to assume uncapped discretionary spending (such as war funding) grows with inflation. By relying on these phantom savings, the House Democratic bill would add over $160 billion to the debt (including interest) in the first decade alone.
And not to be outdone, the Senate Democrats are set to introduce a bill with no offsets at all. Senate Finance Chairman Ron Wyden recently dismissed the SGR as "budget fakery" that does not need to be offset at all. Worse, the Senate Democrats would extend various expiring health provisions (the "health extenders") along with the SGR reform – and thus it would add more than $200 billion to the debt over the next decade, including interest.
Only the Senate Republicans have a plan that would meet the basic test of fiscal responsibility. They would fully repeal, rather than delay, the indvidual mandate. CBO has scored the repeal as saving $465 billion over ten years, and the bill overall would save $285 billion over ten years. Its savings grow over time, reaching $37 billion in 2024, so it would also reduce deficits in the longer term.
Categorizing SGR Proposals
Caps war spending at levels in President's budget.
Relies on phony savings. Adds over $160b to the deficit this decade
Includes no offsets and continues "extenders"
Adds over $200b to the deficits this decade
Delays individual mandate for five years
Reduces deficits by $45b in first decade but would likely add over $200b in second decade
Permanently repeals individual mandate
Reduces deficits by $285b this decade
*All numbers include interest savings
The proposal began as a bipartisan, bicameral agreement to replace SGR, although there is not yet agreement on paying for it. It is disheartening that every proposal except the Senate Republicans’ fell to the temptation of using gimmicks and would increase deficits. So far, this conversation represents a missed opportunity for Congress to bend the health care cost curve and improve the long-term fiscal picture by negotiating a real SGR deal.