What the Sequester Means for Health Care, Education and the Exchanges (In-depth Analysis); Will “Looking Stupid” Motivate Legislators to Compromise? Why the GOP Would Rather Cut Defense than Close Loopholes

Before looking at precisely who will be hurt by of government-wide sequester cuts on health and education, it’s worth considering the possibility—however slim—that legislators still might reach a budget agreement that brings an end to these blind, across-the-board blows to government spending.

Earlier this week Senator Mark Warner told Bloomberg News that he places the odds for a bipartisan debt-reduction deal at better than 50-50.

Why the optimism?  

Warner, who isn’t a political naïf (he served as Virginia’s governor from 2002 to 2006), believes that ultimately law-makers will arrive at a compromise because as he puts it: “looking stupid at some point has got to motivate people.” 

Granted, this is Warner’s first term in the Senate. This could mean that he doesn’t yet understand the ways of Washington. On the other hand, the fact that he’s new to the beltway could mean that he’s still able to think clearly.

As he reminded his Congressional colleagues Wednesday morning: “These cuts were set up to be the stupidest way possible. No rational group of folks would allow them to come to pass.”

Warner is right. NO ONE wanted cuts that Republicans have rightly called “mindless and random.”  That was the point of the Sequester deal forged during a 2011 deficit-reduction agreement. Legislators purposefully chose targets that were so unpopular that everyone assumed that neither party would ever let them occur.  Conservatives wouldn’t countenance slashing military funding by 7.9%, Democrats wouldn’t accept deep cuts to social programs that our most vulnerable citizens need.  They would have to find a compromise. Or, at least, that was the theory.

Instead, Democrats and Republicans deadlocked, and now it seems that they have double-dared themselves into an impossible situation. Sequestration will increase unemployment, weaken the economy, and hurt children, seniors and the military. Even the Border Patrol will take a hit.  More public school teachers will lose their jobs.

Official unemployment numbers may rise only slightly. But this is because air-traffic controllers and other government employees won’t be fired outright, though their hours—and their incomes –will cut by as much as 20 percent. Because they will be working part-time, they will still be counted as “employed.” But as consumers, they will be spending less. Economic recovery depends on consumers feeling able to spend more; this is what creates jobs. 

 In 2011, our elected representatives thought that they couldn’t possibly do something so dumb, so destructive. But they have. You would think that, as Warner suggests, by now legislators would be tired of looking foolish. Sheer embarrassment would force them to find a solution.

                                     Why Republicans Won’t Compromise on Taxes

But for Republicans, this is all about “principle.”  Thus they steadfastly rule out budget proposals that would raise revenues by closing tax loopholes or lifting tax rates.   .

For his part, President Obama has said that he is open to using a combination of new tax revenues and “sensible” spending cuts to entitlement programs, including Medicare and Social Security. (As I have explained, there are ways that we could trim Medicare without hurting seniors.)

John McCain, the Republican who lost to Obama in 2008, applauds the President’s willingness to deal, and argues that it’s still not too late for a “grand compromise:”

“I’m open — have always been open — to closing loopholes, eliminating special deals for special interests,” McCain   said yesterday in an interview that will be airing this week-end on Bloomberg Television’s “Political Capital with Al Hunt.”

 “If you call that, ‘raising revenues,’ I’ve been guilty all my political career of trying to cut special-interest loopholes . . . The government could reap ‘tens of billions’ of dollars by ending tax breaks for Hollywood and companies such as Facebook,” McCain added. (The social media company went public with $16 billion in deductions to lower future tax bills because of the way current law allows it to value stock options.) 

“Why are we doing all these things that only benefit the special interests who still have enormous influence here?” McCain, asked. “Republicans have betrayed our base by allowing this kind of pork-barrel and earmark spending to go on.”

Others have pointed to “unjustified loopholes” that cost far more. Michigan’s Senator Carl Levin (D.) has proposed reducing “ludicrous” corporate deductions for stock options and doing away with the loopholes that lets hedge fund managers report carried interest as ordinary income rather than as capital gains.

The reforms Levin proposes could help raise at least $200 billion over 10 years. He observes that U.S. corporations now pay an effective tax rate of 15 percent –due to various deductions and loopholes– even though the top marginal rate set in the tax code is 35 percent.  What is more shocking is that thirty of the largest U.S. multinational corporations, with combined profits of $160 billion, paid no corporate income tax whatsoever from 2008 to 2010.

                          Why the GOP May Prefer Sticking With the Sequester

But Levin is a Democrat, and McCain, a maverick Republican.

GOP leaders are not going to listen to them. Republican leaders have declared that they are not giving ground on taxes. As Boehner has said “talk of tax increases is over.”  

To the surprise of many, it appears that conservatives care more about shieldling wealthy corporations than they care about protecting the Defense budget.

This morning, the GOP made its position clear once again, rejecting a budget that a weary Senate passed a little before 5 a.m. The Democratic plan would raise taxes on corporations and the wealthy, trim spending modestly, and invest new revenue to build infrastructure while trimming the federal deficit.  The White House applauded the vote.

Republican leader Senator Mitch McConnell of Kentucky dismissed it, saying “The only good news is that the fiscal path the Democrats laid out in their budget resolution won’t become law.”

This is why, at this point, I see scant hope for deal-making. Taxes continue to be the sticking-point.

If the President Offered Up Medicare and Social Security on a Platter, Would Republicans Care?

To many in the GOP it may not matter what President Obama offers. Republicans are flexing their muscles, showing that while they may have lost the 2012 election, this still can do damage.

Blocking Obama is at the top of their agenda. They may hope that, in the long run, the sequester will overshadow anything that President Obama accomplished in his first term, putting Republicans in a better position to take the White House next time around  Some may even believe (mistakenly) that they can use these ham-handed cuts to stop Obamacare.  (In fact heath reform is already happening, and the money to fund it is baked into the ACA cake.)

Finally, as I explain in the post below  Republicans are not terribly concerned about losing future elections because voters blame them for the pain of Sequester. Thanks to gerrymandering, most House Republicans are coming from solidly Republican “safe districts.” They have little reason to worry about being turned out of office.

For the time being, at least, I expect that the Sequester spending cuts will survive, increasing the quotient of human suffering in this nation.

                                 Who Can “Shrug Off” the Sequester?

Some pundits argue that budget cuts averaging “only about 5%” aren’t worth whining about.. Presumably these observers are neither very old, nor very sick, nor very poor. They are not parents of children who will be among the losers. Personally, they will not feel the sting of Sequestration.

But, make no mistake, if you happen to be:

 —  a senior who moves to a new town, and can’t find a doctor;

—  the parent of a handicapped child who needs special education and finds that funding has vanished;

—   a low-income working mother who depends on a program that provides nutritional assistance to mothers and children ; 

—  a gifted 29-year-old public school teacher who loves her job, but loses it because she was among the “last hired”;

—   or a middle-class parents who discover that, due to cuts in public school staffing, their six year-old is now trying to learn how to read in a class with 28 students and one teacher

–you won’t be able to shrug off  the Sequester.

Below, how the cuts will affect health care and education, with my analysis of the damage.

                                     Health Care: Who Will Be At Risk?

—  Medicare: Doctors, hospitals and others who care for Medicare patients will see their reimbursements fall by 2% beginning April 1. The sequester reductions will result in $11 billion in lost revenues to Medicare providers.

 Will providers stop seeing Medicare patients? I can’t think of a hospital that could stay open without Medicare revenues. The vast majority of physicians also need Medicare patients to keep a practice afloat. And many doctors just wouldn’t have the heart to cut off seniors who they have been seeing for years.

 But more doctors may well turn away new Medicare patients. This could reduce access for many seniors, especially if they move, or their doctors retire.  Some who turn 65 this year or next could find themselves shut out of the system, particularly when searching for a primary care physician.

 — National Institute of Health: $1.6 billion sliced from its $30-billion budget. Some research won’t continue, and scientists are worried that the United States may see promising fledgling scientists leave, immigrating to  countries that are investing heavily in medical research.   NIH’s own highly-respected hospital in Bethesda, Md. expects to accept only 9,945 new patients this year, down 14% from last year, mostly due to the sequester and other federal funding cuts.  

The Centers for Disease Control and Prevention: loses roughly $323 million. Programs that provide health care screening for poor people will be hit hardest. Officials anticipate 25,000 fewer breast and cervical cancer screenings and 424,000 fewer HIV tests.  Most likely, the CDC also will be forced purchase 540,000 fewer doses of vaccines for a range of diseases such measles, whooping cough and hepatitis. When the poor do not receive vaccines for infectious diseases, this puts all of us at risk.

 The FDA budget will be trimmed by $210 million, or about 5.1% of its $4.1 billion budget. The agency won’t be able to review new drugs as quickly, and austerity will undermine its ability to protect us against dangerous drugs and devices.

 — Nutrition Assistance for Seniors: “Meals on Wheels For Seniors” has been whacked.  Not only does this program provide food for seniors who are no longer able to cook, “service reductions could have a detrimental effect that goes beyond receiving fewer mealsthe Washington Post reports.  

It is not uncommon for our drivers to find someone on the floor, someone in need of medical attention or someone doesn’t come to the door. We don’t know why so we call their emergency contact,” Lisa Wideman, director of operations for the Senior Meals Program in West Michigan told the Post.

“We have already cut back from 5 days delivery to 3 because of funding reductions in the past,” she adds. “When individuals are isolated and don’t have family nearby, nobody is checking on those people. The only person, often times, they see during the week is our drivers. Every day we have to cut back is less contact with people, less safety checks going on.” (For White House estimates of the state- by- state impact see this interactive chart.   (H/T to the Washington Post’s “WonkBlog”)

— The Women, Infants and Children program that provides nutritional assistance to low-income mothers initially was reduced by $350 million. Congress now has restored $250 million. But the program still is short $100 million. This means that some children and mothers will lose access to the program.

Public Housing: support is slashed by about $1.94 billion. Safe, clean public housing is essential to public health.

Funding for AIDS Patients: Reductions in Centers for Disease Control grants will result in 424,000 fewer HIV tests. Health and Human Services Secretary Sebelius also has told Congress that the AIDS Drug Assistance Program will be unable to provide “life-saving HIV medications” to some 7,400 patients. About 7,300 fewer AIDS patients will receive housing assistance, according to Housing and Urban Development Secretary Donovan.

–STOP Violence against Women: The Department of Justice estimates that more than $20 million might be lost from all of VAWA’s programs. These dollars will reduce much-needed federal resources for victims of domestic violence, dating violence, sexual assault and stalking.  See the White House’s state-by-state analysis of the impact .  In Texas 2100 fewer women will be served; in New York 1600 victims won’t get help.

Public Health Programs:  you will find the White House’s state-by-state estimates of cuts to Public Health—including substance abuse programs here / (H/T to the Washington Post’s “WonkBlog”

                                    Sequestration and Education: Children Left Far Behind

— Special education: funding is reduced by $644 million. Special Ed teachers will be fired, and classes will be too crowded to give disabled kids the individual help that they need. Probably some will stay at home. See this chart for  the White’s Houses estimate of how the cuts will affect individual states.  

—  Head Start: some 70,000 kids may be kicked out of a program that helps prepare preschoolers for kindergarten, while also providing day care that poor working mothers desperately need. Some states are now holding lotteries to decide which children will be included in the program.     

Public Schools: The White House estimates that 30,000 teacher and school staff jobs may be eliminated thanks to 1 million in cuts to funding for primary and secondary schooling, with some states (Georgia, Florida, Michigan, North Carolina, Texas, California) each facing funding cuts of more than $20 million.  

In a White House briefing on February 27, Education Secretary Arne Duncan put the total number of jobs that will be lost at 40,000. Title I grant funding, which supports students in high-poverty schools, could experience a $725 million reduction, Duncan told a Senate panel. That cut would eliminate support for about 2,700 schools and 1.2 million disadvantaged students, Here, you will find the White House’s state-by state estimate of the impact on primary and secondary schools.  

 How Sequestration Will Affect the Affordable Care  Act– and the Exchanges  

Thanks to the sequester, the $1 billion request from the White House for implementing health insurance exchanges and other provisions of the ACA has been denied.

 It is not entirely clear how this will affect the Exchanges. According to Modern HealthCare. “Gary Cohen, director of the Center for Consumer Information and Insurance Oversight at  CMS, recently told reporters that CMS had sufficient funds already to ensure that the exchanges begin enrolling people in all 50 states on Oct. 1.” 

Naysayers remain skeptical about the Exchanges—the marketplaces where small companies and individuals who buy their own coverage will shop for insurance. For more than a year, the Obama administration has stuck by its story:  by October, the Exchanges will be open..

I am convinced that this will happen. The Obama administration is cautious: this is a president who doesn’t go out on a limb unless he is certain that he can deliver. (The president  didn’t “own” the Afforable Care Act until early 2010–when he and Nancy Pelosi were sure Democrats had the votes. This was when I became sure that the legislation would pass,

And this is why I  believe that the Exchanges will be open, in every state, on schedule.  This is not to say that all Exchanges will be functioning smoothly. In a country of this size, signing up millions of uninsured Americans is bound to be extraordinarily messy.

In  states that oppose Obamacare,, my guess is that the Exchanges may be struggling for six months to a year. Some people will be helped, but many won’t join the program until the second year. Customer service (letting people know what is available to them and how to sign up) will be an enormous task. 

 Ideally (and this is just my idea),  the IRS might send a letter to every American who qualifies for help based on his or her 2012 taxes, letting them know that they will be eligible to receive a government  subsidy that will help them buy insurance,, how much it will be, and how to apply for it.

(2012 income will determine eligibility for a subsidy since families won’t be filing 2013 taxes until April 2014. In April of 2015, the IRS will settle up with those who received subsidies in 2014, determining whether the subsidy they received was too little or too large–based on their 2014 tax return.)

in  on her places, I expect that the Exchanges will be running fairly smoothly in 2014. These will include serveral of our largest states that already have prepared for health care reform, including California and New York.  

Keep in mind that, even in red states such as Texas and Florida  a great many vested interests have a stake in seeing the Exchanges work: Hospitals, insurers, drug-makers and device-makers need the new customers who will be able to come to them, government subsidies in hand. They will do their best to reach out to these new customers.

How will Washington make the Exchanges work? The administration did a remarkable job of bringing out the  ote in 2012. I expect it will put a similar effort into forging a group of paid workers and volunteers getting the word out about the Exchanges.

As I have explained in the past, the majority of younger Americans who are now uninsured will be eligible for a subsidy. If enough uninsured or under-insured 20-somethings and 30-somethings sign up–and Massachusetts’ experience suggests that they wiil–the cost of comprehensive coverage will fall.

This is the key to universal coverage: “Everone into the pool!”



4 thoughts on “What the Sequester Means for Health Care, Education and the Exchanges (In-depth Analysis); Will “Looking Stupid” Motivate Legislators to Compromise? Why the GOP Would Rather Cut Defense than Close Loopholes

  1. Unfortunately, an across-the-board percentage cut at the top organizational level, with each organization distributing the cut among its programs and organization, is probably the only way that Federal spending can be significantly reduced. Neither Party has sufficient political strength to make the kind of hard decisions needed, and political compromises are impossible. Both sides are well aware that this is necessary.

  2. Harry–

    Across the board cuts are inevitably “dumb” particularly in areas as complicated as healthcare and education.

    Cuts need to be made with a scalpel, not an axe.
    Otherwise, the most vulnerable people are hurt, and as a result of unintended consequences, cuts do more harm than good.

    Under the Affordable Care ACt the decisoins about where to cut will be made, not by Republicans or by Democrats, but by health care providers..

    Under the ACA providers (doctors and hospitals) will have skin in the game. Rather than being paid for how much they do (fee for service) they will be paid for how well they do it. Their reimbursement will turn on whether they manage to achieve better outcomes at a lower cost.
    Under the contracts that they are beginning to make with Medicare and prviate insurers, if they fail to achieve better outcomes for less, they lose millions. If they succeed they share in the savings, and reap bonuses.

    Most importantly, the cuts will be coming from inside the system. Medicare will make some cuts (paying less for certain services that are now over-compensated and provide little benefit to patients) but within Medicare these decisions will be made, not by politicians, but by medical reserachers using medical evidence.

    One of the strenght of the Affordable Care Act is that it
    gives Medicare and HHS the power to do many things without going through Congress. Politiicans will not be making the decisions.

  3. “Under the ACA providers (doctors and hospitals) will have skin in the game. Rather than being paid for how much they do (fee for service) they will be paid for how well they do it. Their reimbursement will turn on whether they manage to achieve better outcomes at a lower cost.
    Under the contracts that they are beginning to make with Medicare and prviate insurers, if they fail to achieve better outcomes for less, they lose millions. If they succeed they share in the savings, and reap bonuses.”

    I fail to see how this could work in “mental” health (or healthcare in general)! Ultimately people, not practitioners, are responsible for their own health. So, if a person completes suicide, does no one get paid? Or how about someone experiencing complicated depression– how would treating psychotherapists be reimbursed? Wrong incentives! What will happen is that clients/patients will receive less care instead of the care they need.

    Single payer is a far better payment option where people get the services they need and there aren’t financial gains for anyone (no intermediary rapacious insurance corps) for providing less service.

    • Lou–

      Unfortunately, insurers are not the only ones looking for profits.
      Hospitals (including non-profits), drug-makers, and device-makers all are looking for profits.

      Taking insurers out of the equation does not save that much money.

      If you look at Europe, you will find that all health care systems there use insuers–but they art regulated- as they are under the Affordable Care ACt. Only the UK and Canada are “single-payer” and they are not as good as Switzerland, Germany, France . . .

      As for mental health patients, “better care” does not mean that the patient is cured. “Better care” also does not mean that the cancer patient is cured. Or that the obese patient loses weight.

      It means that doctors and hospitals are doing the appropriate things to try to help the patients. And that the hospital for the mentally ill treats patients humanely so that they doesn’t develop gruesome bedsores, are not bullied by people caring for him, etc. Appropriate evidence-based medications for depression, schizophrenia etc. are tried.

      If appropriate, he receives “talk therapy”–not just medications.

      Unfortuantely, studies show that U.S. doctors do not follow evidence-based guidelines in a great many cases.
      They do things the way they learned to do them 25 years ago in med school. Or they do them the way they think best–convinced that they, personally, know more than all of the research out there. . .

      This is a major reason why “outcomes” in the U.S. are not as good, in some areas, as they are in many European countries where doctors are expected to–and more often do–follow guidelines. (In the U.S. docs are more likely to see themselves as “free agents”)

      This is why paying for “value” is all about paying doctors not just for better outcomes, but for following the guidelines that emerge from medical reserach. It also means paying more attention to patient safety– and not paying hospitals if there are too many preventable or egregious errors. (wrong-site surgery, for instance)