(photo: Nick Kidd)

The White House definitely wants the Catfood Commission II to negotiate their grand bargain that they can tout along the lines of “getting things done” with a “bipartisan compromise.” And they believe that the automatic cuts that would be triggered if the Catfood Commission II recommendations don’t come about are so distasteful to both sides, that it will force an agreement.

Some Democrats took a look at the automatic cuts and thought they were tough, but probably better than a bad agreement that would slash the safety net and in all likelihood do little on revenues. After all, Medicaid, Social Security and programs for the poor were protected in the agreement, and Medicare would only see a provider haircut. And half of the automatic cuts would hit the Pentagon. What’s the forcing mechanism for the left?

Turns out, that would be the exchange subsidies from the Affordable Care Act:

The new health care law will make insurance more affordable by providing subsidies to people who buy insurance on their own. And these subsidies come in two forms. There are tax credits, which people can use to offset the cost of their premiums. And there are subsidies to defray cost-sharing: In other words, the government will help reduce people’s out-of-pocket costs. Under the debt ceiling deal, the tax credits are exempt from automatic reductions, because they are a tax credit and not a form of spending.

But, as both administration and congressional sources are confirming, the cost-sharing subsidies are not exempt. They will decline. And that’s worrisome because the subsidies were already pretty low. In fact, many of us were hoping that, over time, lawmakers would see fit to raise them rather than reduce them. I can’t be sure how much the subsidies would decline, as nobody I’ve contacted seems to have run the numbers yet. And I’m not even positive how reduced subsidies would translate into reduced protection, since technically the subsidies go directly to the insurers. (I don’t even want speculate about the impact until I know more. I’ll update this item when I do.)

But the point here isn’t to second-guess specific trade-offs in the automatic cuts; again, I think Obama and the Democrats did a good job of protecting the most vital programs and the most vulnerable populations. Rather, it’s a reminder about the overall structure of the deal. When you decide to reduce the deficit by $2.4 trillion over ten years, with little chance for including new revenue as part of the package, you’re going to end up cutting spending in some regrettable ways. No amount of last-minute negotiating was going to change that.

So there’s already reason to be concerned about how the exchanges will work and whether the subsidies will be affordable. Now we have this possibility that, without a Catfood Commission II agreement, the exchange subsidies would be even more meager. And they would be more meager in ways that the individuals wouldn’t see right away. Their premiums would be the same, but their co-pays and deductibles would go up. Their coverage would be less useful to them.

The exchange subsidies, which for the moment have no constituency, were always going to be a big pot of money for deficit reducers to target. They already have been, as they were clawed back to pay for the elimination of 1099 reporting, the first fix to the ACA. Why the subsidies wouldn’t be protected and exempted from automatic cuts is astonishing; after all, we’re talking about poor and middle-class people here. And this is the President’s signature bill. He’s already going to subject it to slings and arrows?

I guess this is why we’re all not clapping louder at the deal.

David Dayen

David Dayen