The Fiscal Cliff and its Impact on Health


With the election season finally closed and Congress back from the Thanksgiving holiday, media outlets across the country have taken hold of their next obsession the “fiscal cliff”.   The dire financial straits our country now faces is the result of Congressional partisanship at its worst. Democrats and Republicans were unable to work out a comprehensive deficit reduction deal in August of 2011 when we originally neared the cliff, and even the Super Committee, comprised of Senators and Congressmen from both sides of the aisle, failed to come to significant resolution earlier this year.

And now, the unpalatable austerity measures, originally provisioned to ensure compromise between the parties, are scheduled to take effect at the end of 2012. Since movement on the Hill all but halted during the months leading up to the election, legislators now face a critical Lame Duck session with limited time for negotiation.

Let’s take a look at some of the healthcare -related items involved in the fiscal cliff.

  1. Sequestration:The most notable element of the fiscal cliff, sequestration refers to a vast array of mandatory and discretionary spending cuts. While the military will incur the largest spending reduction,—a two percent straight cut will also be taken out of the Medicare budget (Medicaid is exempt).
  2. Medicare Sustainable Growth Rate:Since 2002, a “doc fix” is passed almost each year to keep physician pay steady in place of reducing reimbursements to cover the government’s overspending based on the growth rate. The most recent patch will expire in January 2013 resulting in a possible 27 percent cut to Medicare reimbursements.
  3. Taxes:Along with the expiration of the Bush Era Tax cuts and payroll tax cut from 2011, a few tax provisions of the Affordable Care Act will also take effect. These provisions involve increased rates on earnings and investment income among high-income individuals.
  4. The Affordable Care Act: CMS’ program management budget to implement the new Health Law would also take a hit. The cuts would affect grant funding for the new statewide Health Insurance Exchanges as well as the ACA’s prevention and public health fund.

Fortunately, members of Congress have some options at their disposal if they wish to avoid the most difficult decisions (either a grand compromise or going over the cliff). As with previous budget negotiations, Congress can simply “kick the can down the road” by postponing the effective date of spending cuts or they may also choose to tackle the issues that have already have bipartisan support such as the “doc fix” and avoiding the Alternative Minimum Tax.

The Congressional Budget Office has not painted a pretty picture if indeed we plunge over the “fiscal cliff.” Many experts claim that the austerity measures could land us back into a recession, while others believe the effects may not be so drastic. There is reason to be hopeful, however. Leaders from both parties have recently struck a conciliatory tone, recognizing the negative political consequences of more squabbling.

While it seems strange to think that this was a product of our own creation, we should remember that the fiscal cliff was designed to incentivize action and compromise. We here at Practice Fusion will remain cautiously optimistic as the talks proceed in Washington and continue to drive forward progress in health care.

By Reid Meadows

As a New Account Specialist at Practice Fusion, Reid Meadows helps practices adopt and implement Practice Fusion’s EHR. He’s an avid news reader passionate about health policy and the improvements that technology can bring to healthcare as a whole. Reid previously worked as a political consultant providing companies with the political and media support to pass local projects. In his spare time, Reid enjoys hiking and backpacking throughout Northern California and cheering his San Francisco 49ers.