The Downside of the $1.9 Trillion COVID Relief Bill

If passed, the COVID relief bill backed by Democrats may usher in massive cuts to Medicare and other federally financed programs, including those that support student loan borrowers. The cuts in program funding would take effect in 2022 and remain in force for several years.

Republicans are using the threat of support pullbacks in their effort to rein in the issuance of more pandemic aid. The bill being debated includes a $1,400 stimulus payout and additional benefits for those without a job.

It is unclear just exactly how lawmakers would allow the cuts to occur. According to the Office of Management and Budget, the cuts may increase fees associated with federal student loans. Some medical care personnel and facilities may opt not to accept Medicare due to a reduction in reimbursement from the government.

Medicare Funding

The cuts are due to the PAYGO Act. The “Pay as You Go” act is a budget rule requiring that any new legislation that has a material impact on revenue and spending on entitlement programs, does not increase budget deficits.

The current COVID pandemic aid measure would increase the federal deficit by $1.9 trillion over the next decade, according to a memo released by the Congressional Budget Office.

As a result, starting in 2022, funding for Medicare would be trimmed back by a full 4 percent, which equates to $36 billion. A further $345 billion in cost reduction would come from areas earmarked as compulsory federal spending, which means, the spending does not require Congress to appropriate funds on an annual basis.

At stake is funding that would normally be set aside for student assistance, housing programs, state unemployment programs, and more. Social Security, Medicaid, and food stamps are non-negotiable and are not subject to cuts.

Medicare Cuts Will Harm Consumers

Representative Jason Smith (R Mo), suggested that cuts in Medicare will harm consumers. Smith, the ranking member of the House Budget Committee, stated during a recent hearing on proposed legislation that “The proposed bill will directly harm America’s working class.”

Democrats, including President Biden, believe the federal government should provide additional assistance to Americans to prop up the sluggish economy and to mitigate financial pain for many households.

Experts are somewhat skeptical that lawmakers will let the budget measures take effect. They point out that Congress typically does not, noting they overrode the automatic tax cuts that would have taken effect when former President Trump signaled for a tax cut in 2017. Congress did the same last year to mute the deficit impact of prior COVID 19 assistance measures.

For them to be waived this year would require Republic support and backing, however, experts say this is unlikely to happen. If the proposed legislation was to gain Republican support, it would do so by reducing the funds available for farm subsidies, defense, customs, and border control measures.

Barry Anderson, an ex-senior official at the CBO has said, “That simply ain’t gonna happen.” He went on to say, “They will waive it.”

The Effects on Consumers

The PAYGO Act of 2010 is the mechanism that is meant to protect the economy from the impact of ballooning deficits.

At the end of every year, deficits are tallied and then averaged over a five-year and 10-year period. The averages are canceled by automatic pullbacks in other areas. The objective is to reduce a spending bills’ deficit impact to $0.

Should the bill pass, reimbursement rates that hospitals and doctors would have expected to get from the federal government will drop by a full 4 percent across the board. The cut will stay in place for five years.

The concern is that more and more doctors may say they are no longer willing to function under the constraints and reimbursements set by Medicare. It is thought that affected medical providers will increase their costs to compensate.

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