Courtesy of Dynamic Graphics 2007\Liquidlibrary\Thinkstock

AAOS Now

Published 1/1/2012
|
Madeleine Lovette

Super Committee Fails to Reach Deficit Reduction Agreement

Defeat could trigger new Medicare cuts effective in 2013

On Nov. 21, 2011, the Joint Select Committee on Deficit Reduction, otherwise known as the “Super Committee,” acknowledged that it had failed to reach a deficit reduction agreement. The bipartisan committee was created under the Budget Control Act of 2011, which ended the debt ceiling crisis by specifying $900 billion in spending cuts over the next 10 years. To further reduce the deficit, the committee was tasked with finding an additional $1.2 trillion in budget cuts over the course of the next 10 years.

The six Republicans and six Democrats from both houses of Congress (see “Who’s who on the ‘Super Committee,’” October 2011 AAOS Now) had a unique opportunity to put political differences aside and find real solutions to some of the nation’s most costly policies. Items placed on the table for discussion included repealing the Medicare sustainable growth rate (SGR) formula, reducing entitlement spending, implementing tax reform, and devising methods for raising revenue.

Why did they fail?
For 3 months, Republicans and Democrats on the committee played political ping pong, remaining on their respective sides of the court on the issues. Republicans pushed for privatizing Medicare, lowering the corporate tax rate, and extending the Bush-era tax cuts while Democrats promoted raising taxes on the wealthy, preserving the Medicare system, and closing corporate tax loopholes.

As the deadline loomed, Democrats did express a willingness to make cuts to the Medicare program and even raise the eligibility age for Medicare in return for tax increases, but Republicans refused to go along with any type of tax hike. This refusal came in spite of deficit-reducing proposals released by bipartisan groups such as the Senate Gang of Six, the Simpson-Bowles Commission, and the Domenici-Rivlin task force, which underscored the need for increased revenues to balance the budget, possibly by raising taxes for America’s top earners.

What are the consequences?
The impact of the Super Committee’s failure to reach an agreement was immediately felt on Wall Street. The Dow Jones Industrial Average lost more than 248 points and the NASDAQ fell 49 points.

Washington’s unwillingness to compromise prompted some economists to predict an even further downgrading of the U.S. credit rating, due to the inability of politicians to develop a long-term plan to manage the nation’s debt. Even if the Super Committee had agreed to a $1.2 trillion deficit reduction plan, the national debt still would be projected to increase from $14 trillion today to $19.6 trillion in 10 years.

Beyond the immediate market effects, however, a provision in the Budget Control Act mandated that the Super Committee’s failure would trigger $1.2 billion in mandatory cuts in defense and domestic discretionary government spending on Jan.1, 2013. Among the mandatory cuts is a 2 percent decrease in funding for the Medicare program each year for the next 10 years. With a lower overall budget, Medicare payments for physicians, hospitals, nursing homes, and other providers would decrease. In addition, because specific Medicare expenditures are not identified, the 2 percent cuts would affect beneficiaries as well.

Hope for repeal
Members of Congress know that the cuts to the Medicare system would be disastrous for the nation’s senior citizens and for healthcare providers as well. Because the automatic triggers do not go into effect until 2013, some members of Congress are examining ways, over the next 12 months, to scale back or eliminate these devastating cuts altogether.

For example, some congressional leaders have suggested passing waivers, repealing specific provisions, or making “technical corrections” to the language of the Budget Control Act. Others in Congress, however, believe that the mandated cuts should not be repealed unless Congress can reach a deficit reduction agreement that exceeds $1.2 trillion. President Obama has promised to veto any bill that seeks to reduce or repeal the automatic triggers.

AAOS plan of action
The American Association of Orthopaedic Surgeons (AAOS) is committed to working with Congress and other stakeholders to prevent the potential 2 percent Medicare cuts scheduled for 2013 from taking place. In the next 12 months, AAOS will encourage Congressional leaders to consider deficit-reducing policies such as reforming Medicare payment and medical liability policies, rather than making reckless cuts to the Medicare budget that will threaten access and jeopardize the care of millions of Americans.

Madeleine Lovette is the communications specialist in the AAOS office of government relations. She can be reached at lovette@aaos.org