Changes in Medicare's Payments to Physicians

November 19, 2009

CBO just released a letter responding to questions from Congressman Ryan about H.R. 3961, the Medicare Physicians Payment Reform Act of 2009, which is scheduled to be considered by the House of Representatives today. Congressman Ryan inquired about the total budgetary impact of enacting that bill, which would increase the rates Medicare pays to physicians, along with H.R. 3962, the Affordable Health Care for America Act, the broad health care reform bill passed by the House of Representatives a few weeks ago.

H.R. 3961 would change payment rates and restructure the sustainable growth rate (SGR), the formula that determines the updates to payment rates for fee-for-service physicians services in Medicare. Under current law, those payment rates are scheduled to be reduced by about 21 percent in January 2010, and CBO estimates that the rates will be reduced by about 2 percent annually for several subsequent years. H.R. 3961 would increase those payment rates by 1.2 percent in 2010 and implement a new formula beginning in 2011. Those changes would result in significantly higher payment rates for physicians than those that would result under current law.

CBO estimates that enacting H.R. 3961, by itself, would cost $210 billion over the 20102019 period. CBO and the staff of the Joint Committee on Taxation have separately estimated that enacting H.R. 3962 would reduce federal budget deficits by $109 billion over that same period.

CBO estimates that enacting both bills would add $89 billion to budget deficits over the 20102019 period, somewhat less than the sum of the effects of enacting the bills separately because of interactions between their provisions. The agency estimates that the two bills together would increase the budget deficit in 2019 by $23 billion relative to current law, an increment that would grow in subsequent years.

A detailed year-by-year projection for the following decade, like those that CBO prepares for the 10-year budget window, would not be meaningful because the uncertainties involved are simply too great. CBO has therefore developed a rough outlook for that decade. As stated in its October 29, 2009, letter to Congressman Charles B. Rangel, CBO expects that [H.R. 3962] would slightly reduce federal budget deficits in that decade relative to those projected under current lawwith a total effect during that decade that is in a broad range between zero and one-quarter percent of GDP [gross domestic product]. If both H.R. 3961 and H.R. 3962 were enacted, CBO expects that federal budget deficits during the decade following the 10-year budget window would increase relative to those projected under current lawwith a total effect during that decade that is in a broad range between zero and one-quarter percent of GDP.