Automatic 2% Medicare Cut Will Cost 767,000 Jobs, Study Says

September 12, 2012 — A looming 2% cut in Medicare reimbursement triggered by the failure of Congress to forge a deficit-reduction plan will wipe out 767,000 jobs across the economy through 2021, according to a new study released today by the American Medical Association (AMA) and 2 other groups.

The cut, which will affect physicians, hospitals, and other providers, but leave enrollee benefits untouched, is scheduled to take effect January 1, 2013, unless Congress acts to nullify it. The AMA and 124 other medical societies urged lawmakers in a letter today to spare physicians this 2% reduction as well as a 27% pay cut next year that is mandated by Medicare’s sustainable growth rate formula.

The saga of the automatic cut, known as sequestration, goes back to August 2011, when Congress passed the Budget Control Act (BCA) to raise the debt ceiling and keep the federal government from defaulting on its debt. The BCA also called for $900 billion in deficit reduction and the creation of a bipartisan “super committee” charged with finding $1.5 trillion more. If the committee could not reach an agreement by November 23, 2011, to reduce the deficit by at least $1.2 trillion through 2013, then across-the-board cuts in that amount would kick in, with Medicare providers subject to a 2% decrease. The bipartisan committee could not overcome partisan gridlock, and failed to achieve its goal.

Fewer Medical Assistants, Fewer Bartenders
The American Hospital Association (AHA) commissioned a firm called Tripp Umbach to measure the economic impact of Medicare sequestration. Released today by the AHA, AMA, and the American Nurses Association, the Umbach study found that sequestration would wipe out roughly 496,000 jobs in 2013 alone and several hundred thousand more through 2021.

Approximately 43% of those lost jobs would reflect the direct effects of sequestration on the healthcare industry. The remaining job losses would stem from indirect and “induced” effects as healthcare organizations reduce their purchases of goods and services from other industries — think computers and legal advice. In turn, those industries and their employees would have less money to spend, hurting the job market even more.

A breakout of job loss by industry sector illustrates this snowball effect. The Umbach study projects offices of physicians, dentists, and other practitioners to lose almost 62,000 jobs through 2021, while “food services and drinking places” would lose nearly 34,000. In a plain-English example, unemployed medical assistants will spend less at neighborhood bars, which in turn will employ fewer bartenders.

Leading all sectors through 2021 in projected job losses are hospitals at roughly 144,000, followed by nursing and residential-care facilities at almost 64,000, according to the study. The office-based practitioner sector occupies third place. In the nonhealthcare world, employment services would take a hit of roughly 23,000 lost jobs, while real-estate businesses would forfeit 35,000.