www.modernhealthcare.com               June 27, 2011 

By Rich Daly and Jessica Zigmond

As the outlook on the federal debt and healthcare’s prominent role in it appeared to worsen last week, political leaders in Washington headed toward a partisan standoff regarding potential solutions.Leaders of both parties agreed that a deficit-reduction deal under negotiation needed to include measures to bolster the federal government’s healthcare finances, but the two sides split over whether to use either new taxes or changes that would limit the growth of those programs.

Talks led by Vice President Joe Biden stalled after House Majority Leader Eric Cantor (R-Va.) and Senate Minority Whip Jon Kyl (R-Ariz.)—the only two Republican representatives in the bipartisan negotiations—withdrew because Democrats were demanding tax increases, they said.

“We have this problem because government spends too much,” Senate Minority Leader Mitch McConnell (R-Ky.) said in a Senate floor speech Thursday. “The way to solve it is to spend less. It’s mystifying, really, that at the 11th hour some would now propose tax hikes as a condition of any agreement.”

Democrats insist that tax increases are needed, in part, because federal taxes are 15% of the gross domestic product, which is less than the average 18% of GDP tax rates of recent decades. “We can raise revenue and have a positive economic outcome,” Senate Finance Committee Chairman Max Baucus (D-Mont.) said during a June 23 hearing of the committee dedicated to the future healthcare entitlements. Tax hikes in the early 1990s did not prevent an economic boom later that decade, he said. 

The Republican boycott over taxes echoes an earlier threat by liberal Democrats to block any debt deal that included major changes to Medicaid. Earlier this month, Senate Democrats signed on to a letter promising that 41 of them—enough to sustain a filibuster—would oppose the Medicaid changes in the budget bill passed by the Republican-controlled House.

Another component of the House-passed budget, a plan to transition Medicare into a system of private insurance subsidies for people now younger than 55 years old, has drawn fire from congressional Democrats, and President Barack Obama routinely thrashes it in his campaign speeches. Republicans counter that Medicare as currently structured is doomed to fail, as evidenced by the Congressional Budget Office’s March conclusion that its main trust fund will reach insolvency in 2020. 

The increasingly hardened positions by the two sides come as the fiscal outlook for the federal government and its healthcare programs grows more precarious.

The CBO, as part of its annual debt report, warned last week that the rapidly growing national debt could soon spark a European-style crisis unless Congress moves forcefully. The debt, according to the report, is on pace to equal the annual size of the economy within a decade. The report said the debt burden increases the likelihood of investors losing faith in U.S. bonds, which will force drastic spending cuts or tax increases. 

One of the biggest drivers of the debt is federal healthcare spending, which is expected to rise from 5.6% of GDP in 2011 to as much as 10% of the economy by 2035, the CBO said.

“The fact that the latest version looks so much like the previous one—going back a decade—is a real wake-up call,” Douglas Holtz-Eakin, president of the American Action Forum, a Washington-based conservative policy institute, said about the CBO report in an interview. Holtz-Eakin was director of the nonpartisan CBO when the previous report he mentioned was published in 2003. “The Affordable Care Act failed one of its chief missions, which was to control cost growth.”

Meanwhile, the AARP and four healthcare associations last week released a Lewin Group study that analyzed how one of several debt-reduction bills circulating on Capitol Hill would affect hospitals, employers and families.

The report evaluated the Commitment to Prosperity Act, a bill that Sens. Bob Corker (R-Tenn.) and Claire McCaskill (D-Mo.) introduced in February. The legislation could reduce federal payments to hospitals by more than $700 billion from 2013 to 2021, the analysis found.

Along with AARP, the American Hospital Association, the American Medical Association, the American College of Cardiology and LeadingAge—an association of not-for-profit groups that work on aging issues—commissioned the report.

AHA President and CEO Richard Umbdenstock emphasized that such deep cuts would surely reverberate throughout the industry, especially to suppliers, on whom hospitals spend one-third of their costs. The study also projected that 1.3 million healthcare workers could lose their jobs if the bill became law.

“Hospitals have already stood tall with the $155 billion” in cuts as a result of the Patient Protection and Affordable Care Act, Umbdenstock said.

Rep. Michael Burgess (R-Texas), a physician, said in an interview he understands the concerns of the groups that commissioned the report. But cuts are likely to hit “all sectors that do depend on a stream of federal spending dollars,” Burgess said, adding that healthcare groups need to evaluate their spending.

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