Beth Mantz-Steindecker of Washington Analysis, Washington – a “buy side” research firm that serves hedge funds and institutional investors -- says in a research note that the deficit control procedure created by the budget control measure seems likely to lead to “sequestration.”

Sequestration would create a wave of automatic, across-the-board cuts that would exempt some programs -- such as Medicaid, Social Security and veterans programs – but hit Medicare hard, Mantz-Steindecker says.

Under one scenario, Medicare Advantage could face a 2% across-the-board starting Oct. 1, 2013, Mantz-Steindecker says.

The budget control measure requires a 12-member special commission established by Congress to help Congress achieve at least $1.2 trillion in savings over a 10-year period by November.

If Congress fails to make $1.2 trillion in cuts, that would trigger a series of across-the-board cuts big enough to make up the difference between what Congress actually saves and $1.2 trillion.

Some have estimates the across-the-board cuts could amount to $300 billion over 10 years.

Changes to Medicare could take the form of cuts to providers rather than increased cost-sharing for beneficiaries, benefit cuts or increasing the age of eligibility, Mantz-Steindecker says.

The across-the-board cut also could affect the federal subsidies created by the Patient Protection and Affordable Care Act of 2010 (PPACA) that are supposed to help consumers and small employers buy health coverage through a new health insurance exchange system starting in 2014.

“We recognize that this isn’t an idea that has been recently discussed, but it could be mentioned,” Mantz-Steindecker says. “Therefore, this could result in fewer purchasers of health insurance via the exchange or, at a minimum, could change the plans that would have been bought. Both would impact those diversified insurers weighing participation in the exchanges.”

Mantz-Steindecker has based her analysis partly on the work of the Gang of Six in the Senate and on the deficit commission proposals released in 2010.

Under those scenarios, she says, cuts in Medicare Advantage plans and pharmacy benefit managers “are at low risk.”

Mantz-Steindecker says Medicaid health maintenance organizations could benefit from increased enrollment.

Instant Insights /

Debt ceiling deal: Health insurance is there, between the lines

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