As we go into this holiday season the U.S. “fiscal cliff” has taken center stage inside the Washington, DC beltway. Pundits, lobbyists and bureaucrats are gathered together around late night fires eating roasted marshmallows and sharing horror stories about what will happen come January 1st. Each one is trying to top the other with tales of the dreaded effects of the cliff. Many are so worried that they have even forgotten to place blame, the most popular game in this town.
The fiscal cliff is composed of an assortment of automatic tax increases and spending cuts that will occur if no alternatives are approved. Here’s the fun part – this is all self-imposed, a result from years of deferring action to balance spending and revenue. It’s like the end of “Thelma and Louise” where all the politicians have climbed into a convertible and zoomed toward the edge. But here’s the problem – we’re stuck in the trunk!
No solution is perfect. Most of the alternatives are focused on the short-term. For example, the cliff would cut Medicare hospital related payments by 2 percent, but suggested alternatives could cut even more.
So what happens if the government “goes over the cliff?” Here is a quick summary of what will happen. One might even call this the, ahem, cliff notes (sorry):
NO IMPACT - Social Security, Medicaid, federal pay (including military pay and pensions), and veterans' benefits, are exempt from any spending cuts. These are the third rail of politics and no elected official wants to go there.
CUTS - Spending for defense and non-defense programs would be reduced through “budget sequestration,” automatic spending cuts. The cuts would be about $110 billion per year, split evenly between defense ($55 billion) and non-defense ($55 billion) spending. This is out of a total of $1.3 trillion in total projected spending, so don’t expect Uncle Sam to be setting up a lemonade stand.
But the cuts would not be uniform as certain defense and non-defense programs will still need to increase. If no action is taken, some programs would certainly take a big hit and it will not be pretty. In the health care world, one part of the “cliff” is an automatic 27% cut January 1 in Medicare fees for physicians and other practitioners. This annual ritual requires Congress to step in each year to avoid the cut for one more year - the notorious “doc fix.” The cost to avoid this pay cut for 2013 is $25 billion – money that has to come from somewhere else. Also, other programs, such as extended unemployment benefits, would immediately cease.
TAXES - The biggest change, if we go over the cliff, would be increased taxes. From fiscal year 2012 to 2013, federal tax revenue is expected to increase $399 billion, almost 20 percent. This includes an increase in Social Security payroll taxes and an end of the Bush tax cuts and alternative minimum income tax.
TELEMEDICINE - The immediate impact on telemedicine is uncertain but will likely be minor. Medicaid won’t be touched and we will probably see little immediate change in Medicare, but we may be seeing cuts in grant programs that could be hard for some telemedicine networks.
Despite the myriad budgetary problems of the government over the past few years, we have seen a doubling in the use of telemedicine. Going over the “cliff” or adopting other drastic budget decisions next year may force health officials to adopt even more efficient ways to deliver health services and reduce the horror stories of spiraling costs.
The savings attributed to telemedicine and the efficient solution it provides to the growing shortages of health professionals is one of the tools needed for these trying times. While eating their roasted marshmallows, let's hope they see the light.