This Town

Washington grapples with the fiscal cliff and deficit reduction

The great lyrist Roger Miller once sang “If you ever want to be depressed just come to this town.” After one of the longest, most divisive, and most expensive elections in the history of the United States, Americans woke up Nov. 7, 2012 to a political landscape that was largely unchanged. Talk about depressing! For the healthcare sector, the election marks the beginning of some very rough road ahead.

In the coming months, Congress and the Administration will grapple with deficit reduction proposals that will likely have a major impact on Medicare and Medicaid. Meanwhile, implementation of the 2010 health care reform law (the Affordable Care Act, or “ACA”) will intensify. The prognostication is there will not be much good news for the healthcare sector for some time.

President Obama handily won reelection. Subsequently, implementation of his signature domestic legislation will accelerate. However, the ACA is still a divisive issue for the U.S. with half of the population still calling for its repeal. While a few states adopted provisions on November 7 outlawing the individual mandate, these were largely symbolic since the federal mandate will trump inconsistent state laws. With the election now over, both Congress as well as the Administration will seek changes to several important provisions of the ACA. Especially watch for proposals to restructure Medicare and Medicaid with the major focus being on cost reductions for healthcare providers. Also watch for attempts by policymakers to play one constituency in healthcare off another. Nobody is going to be happy with the results.

Congress’ “Lame Duck” session may be one of the most challenging in recent history. A number of critical unsettled matters face Congress and the Administration, commonly referred to as the “fiscal cliff”. Here are the big issues and key expiration dates:

  • The expiration of the Bush tax cuts (December 31, 2012);
  • The expiration of the latest “patch” to the Medicare Sustainable Growth Rate (SGR) formula (“Doc fix”) (December 31, 2012);
  • The expiration of the so-called “Medicare extenders” (December 31, 2012);
  • The expiration of the payroll tax cut (December 31, 2012);
  • The expiration of emergency unemployment benefits (December 31, 2012);
  • The start of the sequestration put in motion by the 2011 deficit reduction deal (January 2, 2013);
  • The annual Alternative Minimum Tax (AMT) patch (must be enacted by December 31, 2012); and
  • The expiration of the so-called tax extender package (including the research and development (R&D) tax credit) (expired December 31, 2011, but often renewed retroactively).

Conventional wisdom indicates that Congress will, once again, kick the can down the road on a number of these issues after engaging is some creative brinkmanship on a couple of “must dos.” Some speculate that moving the expiration dates back for a majority of the “fiscal cliff” items until early 2013, will give Congress and the Administration time to craft a larger deficit reduction package, including tax increases, restructuring for Medicare and Medicaid, etc.

Washington is going to be a pretty depressing place for the health care sector this winter. Miller also sang “Things so bad the weeds won’t grow in this town.” We’ll see come spring!

Robert Betz Ph.D. About Robert Betz Ph.D.

Robert Betz, Ph.D., is president of Robert Betz Associates, Inc. (RBA), a well-established federal health policy consulting firm located in the Washington, D.C. area. Additionally, Dr. Betz is an adjunct professor teaching at The George Washington University where he specializes in political science and health policy. For more information about RBA, visit www.robertbetz.com.

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