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Medicare: It's Not Exactly a Cliffhanger, But . . .

While Medicare is largely protected from the " fiscal cliff" cuts that could come at the beginning of next year, take note: largely doesn't mean completely.

Congress and the White House are working feverishly to forestall the pending budget cuts and tax increases that have brought us to the edge of the cliff. But if they fail, Medicare service providers - doctors, hospitals, skilled nursing, and so forth - will face a 2 percent reduction in reimbursements. That represents $11 billion of the $109 billion in across-the-board spending cuts for 2013 known as sequestration.

What's more, this would come on top of a separate, much larger cut in Medicare reimbursements for doctors that hits with the new year if Congress doesn't hit another set of brakes. An annual increase in Medicare spending that outstrips economic growth - and it routinely does - is supposed to trigger a 27 percent drop in doctors' reimbursement rates.

Each year Congress has put a freeze on a cut to doctors instead of dealing with the problem permanently. That's because a long-term fix could cost $271 billion over 10 years - a politically unpalatable addition to the federal budget deficit.

This year is different, though, because the "doc fix" has been swept into the larger fiscal cliff battle.

Although Medicare beneficiaries are supposed to be shielded from direct impact, there are two ways the provider cuts could trickle down:

  • The failure to pass a "doc fix" and stop the massive spending cuts - resulting in a total cut of 29 percent in Medicare payments to doctors - could deter some doctors from treating Medicare patients.
  • Because insurance companies that offer Medicare Advantage plans and prescription drug coverage are also among the providers whose reimbursements will be cut 2 percent, they could compensate for the cuts by raising premiums.

That's the thing about diving off a cliff: You can't always predict how you're going to land.

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