Yesterday, the president signed a bill that ended months of intense negotiations over lifting the country’s debt-ceiling. But for the fate of Medicaid – and the millions of seniors, people living with disabilities, and low-income children who rely on the program – the negotiations are just beginning.

What’s the deal? In short, the final compromise lifts the debt ceiling enough to last until after the 2012 election and puts in place two stages of cuts in government spending.

In the first stage, caps are immediately placed on discretionary spending, saving $917 billion over 10 years.

In the second stage, a bipartisan joint committee is tasked with developing legislation to reduce the deficit by another $1.2 – $1.5 trillion over 10 years. Failure by the committee to produce an agreement by Thanksgiving or by Congress to enact their plan by December 23 would trigger automatic across-the-board cuts in federal spending to achieve $1.2 trillion in savings. If the Committee agrees on – and Congress enacts – less than $1.2 trillion in deficit-reduction, the across-the-board cuts will be triggered to make up the difference.

Let’s start with some good news Medicaid and Medicare were spared any immediate cuts in the first stage. That said, the first stage cuts include significant short-run spending reductions; any serious economist will tell you that cutting federal spending in the midst of an economic downturn will only worsen the nation’s employment outlook. These larger economic forces certainly have implications for state budgets and Medicaid, but that’s a blog for another day.

The picture is murkier in the second stage. While Medicaid and Medicare are very much at risk for major cuts in a compromise that the joint committee might broker (more on that below), Medicaid is completely exempt from the automatic across-the-board cuts that would be triggered if the committee fails to achieve $1.2 trillion in deficit-reduction. Medicare benefits are also largely protected: across-the-board cuts to Medicare are limited to 2 percent of the programs’ costs and can only come from cuts to providers and insurers.

This is an important victory. Inside reports suggest that Republican negotiators demanded that Medicaid be added to the mix of programs that could face cuts in the event of the trigger, but the Obama administration refused to budge on this point. Consumer advocates deserve credit: they worked tirelessly over the past few months to send a strong message to Congress and to the White House that Medicaid matters. It’s clear that Obama took that message to heart.

Now the bad news – we’re not even close to out of the woods Relief that Medicaid will escape unscathed should across-the-board cuts be triggered must be tempered by the understanding that the trigger may not be pulled, and that committee members will consider deep cuts to Medicaid in their efforts to broker a deal.

It is difficult to predict whether the committee will succeed. On the one hand, the terms of the process were constructed specifically to put immense pressure on both parties to avoid the across-the-board cuts. If committee fails to reach a compromise, all $1.2 trillion in deficit-reduction would come from program cuts – violating Democrats’ vows to ensure revenue increases are part of any deficit-reduction package. And 50 percent of the triggered across-the-board cuts must come from the defense budget – a painful prospect for Republicans.

On the other hand, competing pressures may prevent the committee from reaching a compromise. Republicans may prefer cuts in military spending to a compromise that includes tax-increases. And if they can’t broker a deal that includes tax-increases, Democrats may prefer to allow the across-the-board cuts to be triggered since at least Medicaid and Medicare benefits are protected from those cuts.

While there is considerable debate about the likelihood that the committee will succeed, the prospects for Medicaid are grim if a deal is brokered. Having already slashed discretionary spending by nearly a trillion dollars in the first stage, it will be difficult for the committee to find more savings in those programs. That leaves revenue increases and entitlement spending as the only real options for significant deficit-reduction.

Both parties have already drawn lines in the sand around revenue increases, with Democrats insisting on including them as part of a final deal, and Republicans vowing to vote against any package that includes them. But if significant revenue increases are not part of the solution, for the committee to succeed the cuts required to Medicaid and Medicare would absolutely devastate these programs. According to a statement by Robert Greenstein, president of the Center on Budget and Policy Priorities: “The deal that President Obama and Speaker Boehner were negotiating several weeks ago would have raised Medicare’s eligibility age, raised Medicare cost-sharing charges, shifted significant Medicaid costs to states, modified cost-of-living adjustments in Social Security and other benefit programs (and in the tax code), and instituted other entitlement savings. Those steps would have saved $650 billion to $700 billion over ten years. The joint committee would have to produce cuts twice as deep.”

And even if Democrats succeed at ensuring revenues are part of a deal, Medicaid would still likely sustain very significant cuts, such as the ones that were already on the table during earlier negotiations. Those cuts would jeopardize the health and financial security of millions of seniors, people living with disabilities, and low-income children who rely on Medicaid, and they would shift new cost burdens onto already-strained state budgets.

Making a dark picture worse, Congress needs to act this December to avert an automatic cut in Medicare doctor reimbursement rates (the “doc-fix”). While this is unrelated to the debt-ceiling negotiations, Congress will need to offset the costs of the doc-fix – about $300 billion for a 10-year fix – and they will likely look to find these savings in Medicaid and Medicare. These savings would be in addition to whatever cuts the deficit-reduction committee enacts.

Where does that leave us? Medicaid lives to fight another day, and we should celebrate this success. But let’s celebrate while we roll up our sleeves. The fight starts anew today, and it’s not going to be easy.

— Katherine Howitt, Senior Policy Analyst