Medicare Faqs

How Will the Sequestration Cuts Affect the Health Care Industry?
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Since the U.S. Congress fails to reach a deficit reduction agreement before March 2013, the sequestration process has kicked in and Medicare provider and insurer payments have been cut by 2 percent as of April 1. In the first year of sequestration alone, program spending will be reduced by $3 billion in the current fiscal year, according to updated estimates released by the Congressional Budget Office.

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

There are exemptions for low-income subsidies, and there are additional subsidies for beneficiaries whose spending on prescription drugs exceeds catastrophic levels.

The cuts will undoubtedly affect job growth in the health care industry. The direct loss in the health care sector is estimated to be 330,127 jobs by 2021, joint study released by the American Medical Association, the American Hospital Association and the American Nurses Association.

The report says job losses would ripple across the economy. In just the first year of the sequester, it is estimated that health care and its related industries will lose more than 496,000 jobs, These numbers include those employed in the health care sector, as well as those affected by the purchases made by health care organizations and their employees.  The analysis estimates the number of lost jobs will reach 766,000 by 2021.

The top 5 industries with the most job losses in 2013, because of sequestration are, from highest to smallest: hospitals; physicians’ offices, dentists and other health practitioners; nursing and residential care facilities; medical and diagnostic labs, and outpatients and other ambulatory care services; and home healthcare services.

The Alliance for Nursing Home Care, which analyzed the effect of the sequestration cuts and the cuts mandated by the Affordable Care Act, found that more than one-third of nursing facilities that responded to a survey said they were planning to lay off direct service staff such as registered nurses, licensed practical nurses, certified nursing assistants, therapists and other staff. More than one-half of respondents said they had plans to reduce benefits, while about three-quarters of nursing home operators said they will change wage rates. Altogether, Medicare payment reductions could results in at least 20,000 layoffs industry-wide.

There are no hard facts and figures on how beneficiaries would be affected by the cuts, but the industry lobby has stated that sequestration would hurt access to essential medical services.    

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 Does Sequestration Mean to Medicare?

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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