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What Does Sequestration Mean to Medicare?
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Medicare provider payments were cut by 2 percent beginning April 1, 2013 as part of the spending reductions required by the Budget Control Act of 2011.

The cuts apply to provider payments for services administered under Medicare Hospital Insurance (Part A) and Medicare Medical Insurance (Part B) and contractual payments to Medicare Advantage Plans (Part C) and Medicare Prescription Drug Plans (Part D), according to the Congressional Budget Office (CBO). 

Low-income subsidies and additional subsidies for beneficiaries whose spending exceeds catastrophic levels in Part D are exempt from sequestration. The sequestration percentage is capped at 2 percent for payments for individual services under Parts A and B and for monthly contractual payments to Part C and Part D providers. Other mandatory program spending for benefits and administrative costs are subject to the same reduction rate as non-exempt mandatory spending, according to the CBO.

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That means about 90 percent of Medicare spending is limited to 2 percent in cuts, and 8 percent is completely exempt from sequestration. The remaining 2 percent of Medicare spending would be subject to a 7.6 percent cut in 2013 because it falls under non-exempt nondefense mandatory programs, according to the White House Office of Management and Budget (OMB).            

Medicare providers will see $11 billion in reimbursement cuts in 2013, according to preliminary OMB estimates. The CBO estimates that Medicare budgetary reductions will total $123 billion from 2013 to 2021.    

The CBO also predicts that the sequestration will generate about $31 billion in savings between 2013 to 2021 as a result of reductions in Medicare Part B premiums and other changes in spending. Since Part B premiums are set to cover a fraction of the program’s cost, the CBO estimates that receipts from premiums will decrease due to reductions in budgetary resources and subsequent lower program costs. 

In a letter to Congress sent Sept. 12, 2012, the American Medical Association and more than 100 other provider lobbying organizations wrote, “The combination of the sequestration cut and looming Medicare Sustainable Growth Rate (SGR) payment cut would not only impede improvements to our health care system, it could lead to serious access to care issues for Medicare patients as well as employment reductions in medical practices.”

Related FAQs

What is Sequestration?

How Did We Arrive at Sequestration?

What Part Did Medicare Play in the Fiscal Cliff Discussions?

What Does Medicare Have to Do With the Federal Budget Deficit?

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