Covid relief bill can lead to cuts in Medicare, student loan programs

A Democrat-backed Covid bill could lead to billions of dollars in cuts to Medicare and other federal programs, such as programs that support unemployed workers and student loan borrowers, if it is eventually passed.

The cuts would take effect in 2022 and last several years.

Republicans are using the specter of relapse to argue against providing more pandemic aid, including $ 1,400 stimulus checks and more unemployed benefits.

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It is unclear that legislators would allow them to occur. Even if they survive, the exact impact of cuts on consumers is uncertain.

The cuts can automatically increase fees on federal student loans, for example, according to the Office of Management and Budget.

Some doctors and hospitals may choose not to accept Medicare because of lower federal government cost reimbursements, budget experts said. Providers can also try to pass on additional costs to consumers.

The cuts are the result of a rule – the PAYGO Act – that corrects for additions to the federal deficit by automatically withdrawing funding from certain departments and programs.

The pandemic bailout would increase the federal deficit by $ 1.9 trillion in a decade, according to a Congressional Budget Office memo released Thursday by Director Phillip Swagel.

As a result, Medicare funding would be cut by 4% or $ 36 billion from next year, Swagel said. His estimates were in response to a question from House Minority Leader Kevin McCarthy, R-Calif.

Another $ 345 billion in cuts would come from a range of other areas designated as “mandatory” federal spending. (That means they do not include annual credits from Congress.)

It involves funding for things like student aid, housing programs, tax collection, investor protection, and state unemployment operations. The discounts are typically a few million dollars or less for each line item.

Programs such as Social Security, Medicaid, and food stamps are exempt from budget cuts.

Rep. Jason Smith, a leading member of the House Budget Committee, suggested Medicare cuts would hurt consumers.

“This bill will directly harm the American working class,” Smith, a Missouri Republican, said Monday at a committee hearing on the legislation.

Democrats, including President Joe Biden, believe the federal government should immediately send Americans more aid to support a sluggish economy and ongoing household financial pain.

Experts are skeptical lawmakers who would eventually allow fiscal measures to go ahead.

First, they usually don’t. Congress has overturned the automatic cuts allegedly caused by former President Donald Trump’s signature tax cut in 2017, for example. Last year it also did this to counteract the deficit effect of previous pandemic support measures.

To dispense with this this year would require Republican support. It’s likely the GOP will choose to do this, experts said. Otherwise, they would also choose to cut funding for things like agricultural subsidies, defense and customs, and border protection.

Further, the Covid relief deficit would essentially wipe out all funding for the aforementioned programs, CBO said. (Medicare is an exception – cuts are limited to 4%, while other programs have no cap.)

“That’s not going to happen,” said Barry Anderson, an independent consultant who previously worked as a senior civil servant in the Congressional Budget Office and Office of Management and Budget. “They’re renouncing it.”

The Legal Pay-As-You-Go Act of 2010 – also known as PAYGO – is the mechanism designed to protect against rising deficits.

The deficits are added together at the end of the year and averaged over a period of five or ten years. Those averages are offset by automatic withdrawals in other areas each year, with the goal of reducing an account’s deficit effect to $ 0.

In the case of Medicare, reimbursements that hospitals, doctors and other health care providers expected from the federal government would drop by 4% across the board, said William Hoagland, a senior vice president at the Bipartisan Policy Center.

That cut would be for five years every year, CBO said.

“Over time, more and more doctors will say, ‘I’m not willing to operate under the restrictions and reimbursements of Medicare,’” Anderson said.

Affected providers can somehow increase their costs to compensate for this, he said.

Ironically, consumers would likely see cheaper premiums, said Marc Goldwein, senior vice president and senior policy director of the Committee for a Responsible Federal Budget.

That’s because premiums are calculated based on costs, which would have gone down, Goldwein said.

A 4% discount, if it occurs, is so small that many providers are unlikely to leave the Medicare network, he added.

The precise impact of PAYGO rules on student loan fees is also not entirely clear.

But there are examples of how it could work. For example, the PAYGO rules automatically led to a 5.7% increase in borrowing costs this year, according to the Office of Management and Budget.

That helped offset $ 1.2 trillion in spending from the American Taxpayer Relief Act of 2012. The fee increase corresponded to an overall 5.7% cut in non-defense mandatory programs.

Students may also find it more difficult to get loans if certain Department of Education programs receive less funding, Anderson said.

“There would be much less money to provide loan guarantees,” he said. “So that a whole bunch of students wouldn’t be able to get loans.”

The Department of Education did not return a request for comment.