Round 2 of federal budget battle begins

It has been quite a roller-coaster ride this month, as our government raised the debt ceiling while holding the line on taxes and making a slight stab at deficit reduction.

Then there came a shock, for some, on Aug. 5. The Standard & Poor's rating firm said U.S. Treasury debt should no longer be considered among the safest investments in the world. Standard and Poor's removed the AAA rating the United States has held for 70 years, saying the budget deal didn't address the country's long-term debt problems.

Now Round 2 of the budget battle begins. Could one of the results of this struggle lead to cuts that raise costs for entitlement beneficiaries and squeeze hospitals, doctors, insurers and drug companies? Everything will be on the table for the new 12-member congressional super-committee commissioned to find budget savings. That means Social Security and Medicare can be included.

What happens if there is partisan deadlock? The congressional debt agreement mandates an automatic 2 percent cut in reimbursements to Medicare providers. That's on top of a 6 percent cut already enacted to finance the president's new health care law.

An Associated Press analysis notes the hospital industry agreed to cuts of $150 billion to help pay for Obama's expansion of coverage to the uninsured. Nonpartisan analysts in the government predict ObamaCare's Medicare cuts may push about 15 percent of hospitals, nursing homes and home health agencies into the red.

The possibility of further spending reductions through the debt deal -- from $1.2 trillion to $1.5 trillion over a decade -- could add to that impact.

Remember the congressional super-committee, which must make its report by Nov. 23, can shape its own menu of changes to reform Medicare and Medicaid and slash parts of ObamaCare -- assuming it can get a bill through Congress and a presidential signature.

On Medicare, the committee could push increases in co-pays and deductibles, as have two bipartisan commissions studying the issue. As for Medicaid, it could mean a new funding formula supported by the Obama administration and opposed by governors that could reduce what Washington gives to states for low-income citizens and nursing home residents.

The super-committee has a good (and the only written) blueprint for saving Medicare, proposed by Rep. Paul Ryan, R-Wis. Democrats will vigorously oppose a lot of those reform ideas. However, the super-committee could decide to begin Medicare eligibility at age 67 -- a proposal that the White House floated recently. Those no longer eligible for Medicare could enroll in ObamaCare's health insurance exchanges, where they would get premium subsidies. However, some states already have rejected federal dollars to set up exchanges.

One key area where you would think liberals and conservatives could agree involves addressing the billions of dollars annually lost to Medicare waste, fraud and abuse. Bear in mind that physicians, hospitals, nursing homes and durable medical equipment providers are subject to audits to determine whether they have been overpaid by Medicare. The American Hospital Association's Recovery Audit Contractor Program reports that just through the first quarter of this year, a whopping 26 percent of the identified claims were erroneous. The AHA reports that medical record reviews yielded an average overpayment of $5,469.

This should not stand. Every billing coder dealing with Medicare reimbursement must be qualified or they should be removed. Furthermore, let's see stepped up criminal prosecutions for those who knowingly submit false claims.

The super-committee could also enact reductions worth approximately $600 billion from a plan by Republican Sens. Orrin Hatch of Utah and Tom Coburn of Oklahoma. The steps include freezing the salaries of federal employees for three years and reducing the federal work force over a period of 10 years. We really do have a bloated federal government!

Remember that S&P said its downgrade of the nation's credit rating "reflects our opinion that the fiscal consolidation plan that Congress and the administration recently agreed to falls short of what … would be necessary to stabilize the government's medium-term debt dynamics." It also placed blame on the instability of U.S. policy-making and political institutions.

The president and Congress, therefore, have a duty to provide stability and make a meaningful effort to rein in the entitlement spending that is driving the nation's debt upward.

J.C. Watts (JCWatts01@jcwatts.com) is chairman of J.C. Watts Companies, a business consulting group. He is former chairman of the Republican Conference of the U.S. House, where he served as an Oklahoma representative from 1995 to 2002. He writes twice monthly for the Review-Journal.