Medicaid Physician Payments Add to Year-End Uncertainty

When we talk about policy uncertainty these days, most of the time we are referring to the fiscal cliff. However, several other policies remain in uncertain situations and await Congressional action, among them the increased payments to Medicaid providers that were enacted in the Affordable Care Act.

Currently, doctors are paid nearly 30 percent more by Medicare on average than by Medicaid, although this varies state by state (a few states, in fact, have higher Medicaid payments than those for Medicare). To encourage physicians to treat the newly-eligible Medicaid expansion population under the ACA, Medicaid physicians will be reimbursed at the same rates as Medicare in 2013 and 2014 – at an estimated cost of $11 billion. Many of the details, including what the Medicaid rates are, have not been worked out yet. This uncertainty makes it more difficult to lure physicians into providing care for Medicaid enrollees as intended.

One technical challenge is that Medicare has not yet published its rates for 2013. Medicare physician payments are set to be cut by 27 percent under the sustainable growth rate (SGR) formula. This so-called "doc fix" for Medicare physician payments – legislation that rolls back this cut – could affect Medicaid rates as well. However, Congress has a history of waiting until the eleventh hour to prevent these cuts from taking place.

Another element of uncertainty is the temporary nature of the Medicaid provider payment increase. If continued, higher fees might encourage doctors to join the program, but its effectiveness might be limited because these higher payments are only guaranteed for two years. These Medicaid physician payments may therefore become another "doc fix" issue. Previously, we estimated that making this provision permanent would cost an additional $45 billion through 2022. This new doc fix would be in addition to many other temporary policies in the budget that are routinely extended.

We have written about temporary budget policies before. Ideally, Congress would review the temporary measures periodically and either make them permanent or eliminate them. While temporary policies serve an important purpose by allowing lawmakers to gauge their effectiveness, they are often extended indiscriminately. As a result, we now have too many provisions for Congress to take the time to thoroughly examine, often leading to last-minute blanket extensions with little review. If these extensions are financed with deficit spending, the result is even more detrimental to our long term fiscal problems.

Many of these temporary measures should be addressed in a comprehensive debt reduction plan. By reviewing expiring tax and spending provisions and deciding whether they should be made permanent – instead of the status quo of politically-fraught extender packages – the budget that would be more efficient and easier to project into the future.