CBO: Automatic Medicare cuts would save $123 billion

By Sam Baker - 09/12/11 02:47 PM ET

An automatic 2 percent cut to Medicare would save the federal government roughly $123 billion over the next 10 years, according to the Congressional Budget Office.

The 12-member supercommittee is charged with finding at least $1.2 trillion in deficit reduction. If it fails to reach an agreement, automatic cuts kick in across a broad spectrum of federal agencies, including 2 percent cuts in almost all Medicare programs.

CBO said Monday that the automatic Medicare cuts would total about $123 billion over the next decade.

The structure of the automatic cuts limits their potential savings, CBO said.

For example, the government would lose about $31 billion in Medicare Part B premiums under the trigger mechanism. CBO said the loss of that revenue is one reason the trigger mechanism might not cut the deficit as much as Congress expected.

CBO also said that without the 2 percent cap on Medicare cuts, the program would have accounted for $256 billion in total savings. Because of the 2 percent limit, CBO estimated, Medicare savings will add up to $123 billion and the difference will be taken from other federal programs.

CBO noted in its report that the estimates are “subject to a considerable degree of uncertainty.” The White House budget office would formally implement cuts mandated by the trigger.

Healthcare interests are divided over the supercommittee and the trigger mechanism. Some industries and stakeholders are deeply afraid of across-the-board cuts. Others, though, could fare better under the trigger. The supercommittee could cut some sectors by more than 2 percent, and it also has the power to find savings in Medicaid and the Children’s Health Insurance Program. Both are exempt from the trigger.