Medicare Answers: Is the Sequestration Order Affecting Medicare?

  • Originally published April 16, 2013 , last updated December 23, 2014
  • Medicare
Medicare Answers: Is the Sequestration Order Affecting Medicare?

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This week’s question deals with the sequestration order affecting Medicare.

John asks,

How is the sequestration order affecting Medicare?


Do you feel the wind blowing in the senior’s face again from Washington? A series of automatic cuts in federal spending, called sequestration, went into effect March 1. By law, the Medicare cuts didn’t begin until April 1. They include a 2 percent reduction to physicians and other Medicare providers including hospitals. Have we ever heard of sequestration before? Well that word probably not and what it really means is an automatic reduction to federal government spending for a given fiscal year. Medicare being a federal program is included. Back in 1985, they called it the Balanced Budget and Emergency Deficit Control Act, wow that is a mouth full. It was shortened to the Gramm-Rudman- Hollings Act. It effectively lowered Medicare payments by 10 percent. Have you heard of that lately?

Absolutely not!

There is some good news. There won’t be any changes in Medicare benefits, including Part D low-income premium and cost-sharing subsidies and catastrophic subsidy payments. Yes, doctors will still be paid, but not quite as much. Like all Medicare providers, doctors will take a 2 percent cut in payments. That won't please the docs, but let's hope it isn't enough to make yours — or any of them — drop Medicare patients. Hospitals are not thrilled either. Contractual payments to Medicare Advantage plans will be cut by that 2 percent as well.

Keep in mind that a physician or health care provider cannot increase or add charges to the Medicare beneficiary to cover the difference for the reduced Medicare payment. They have agreed to accept the Medicare rate as full payment when they accepted the original Medicare Assignment.

For Medicare Advantage and Part D cuts, it is assumed that the cuts will be reflected in the next month’s payment as well as in CMS annual reconciliation of plan payments. Fortunately, CMS increased the plan’s risk margin by taking into account the possibility of the sequestration for the 2013 calendar year.

Over time Medicare Advantage beneficiaries could see higher premiums should the cuts remain in place. Since Hospitals account for the largest share of Medicare spending, they will have to absorb about 40 percent of the total cuts. Medicare Supplement is unscathed.

As with the Gramm-Rudman- Hollings Act some 28 years ago, this too will blow over.