The pain could be a lot worse if President Barack Obama and congressional Republicans actually did reach a sweeping agreement to reduce federal deficits.
Automatic cuts taking effect Friday—the "sequester" in Washington-speak—would reduce Medicare spending by about $100 billion over a decade. But Obama had put on the table $400 billion in health care cuts, mainly from Medicare. And Republicans wanted more.
"What people were really worried about was the prospect of a huge deficit bill that could target Medicare for $400 billion or $500 billion," said John Rother, president of the National Coalition on Health Care, an umbrella group that includes service providers.
"The health care industry fears the alternative more than they fear a predictable reduction in rates," said Dan Mendelson, president of Avalere Health, a market analysis firm. "They just do not want to roll the dice. That is why you do not hear as much of an outcry on Medicare."
The budget machinations come at a time when the threat that the government will be overwhelmed by surging health costs seems less immediate. Taking care of aging baby boomers is still a huge challenge, but health care inflation has slowed dramatically in the last few years, leading government number crunchers to scale back their estimates of future costs.
The nonpartisan Congressional Budget Office has reduced its 10-year projections of Medicare spending by $137 billion, a liability wiped off the ledger without the need to cut reimbursements to hospitals and doctors, or to raise premiums for Medicare's 50 million beneficiaries.
The health care portion of the automatic spending cuts was designed to try to avoid pain for individuals and families. Medicaid, the health care program for the poor, was exempted, as were the biggest subsidies under Obama's health care law, which starting next year will help uninsured people pay premiums.
The Medicare cut was intended to fall on providers: hospitals, doctors, health plans, drug companies and others. Once the sequester takes effect, Medicare will reimburse them at 98 cents on the dollar.
Seniors' benefits and premiums weren't touched. However, if the cuts go into effect and remain in place, beneficiaries enrolled in Medicare Advantage plans could see higher premiums over time, if private insurers decide to pass on the 2 percent cut.
Hospitals account for the lion's share of Medicare spending and will have to absorb most of the automatic cuts—about 40 percent of the total. They're followed by Medicare Advantage plans and doctors.
The American Hospital Association and other industry groups say some jobs will be lost if the automatic cuts are allowed to go through.
The Henry Ford Health System in Detroit started planning last year for a $20-million hit from the sequester. CEO Nancy Schlichting says they were able to minimize layoffs by leaving vacant positions unfilled and streamlining operations to reduce costs. The system, a network of hospitals and clinics that employs 24,000 people, also runs a health insurance plan.
It could have been worse, says Schlichting. Cuts considered during the last federal budget showdown late last year were definitely bigger than the sequester.
Those included changes to billing codes, reductions in special payments to teaching hospitals, and cuts in aid to hospitals that treat many uninsured and low-income patients. When they didn't happen, the Henry Ford system was left facing the more predictable 2-percent reduction.
"We don't take any of the cuts lightly," said Schlichting. "I don't think we're protected at this point, even with the sequester."