Health Care Along the Fiscal Cliff


Craig Klugman

Publish date

Tag(s): Archive post Legacy post
Topic(s): Health Care

Craig M. Klugman, Ph.D.

One of the biggest stories in the news as this year ends is that of the U.S. falling off the fiscal cliff. Like many people, you may be wondering who is Cliff, why is he falling, and why is he described as physical.

Who is Cliff?
The cliff is a perfect storm of 4 different economic events happening at the same time: (1) Mandated spending cuts (i.e. “sequestration”), (2) expiration of temporary tax cuts (Bush tax cuts, stimulus tax provisions, alternative minimum tax patch, payroll tax cut, various temporary tax policies that are routinely extended by Congress, and initiation of the Affordable Care Act taxes on high income taxpayers), (3) expiring federal policies (extensions to unemployment insurance, Medicare physician payments) and (4) hitting the debt ceiling limit (i.e. the amount of money the U.S. can borrow).

How will this affect health care?
In short, health care will see a big cut in federal dollars. The biggest component that affects health care is from sequestration (“sequester cuts”). In 2011, Congress began budget negotiations to reduce the federal deficit and raise the debt ceiling limit. A sort of stalemate had occurred because Democrats wanted to raise the limit and then separately discuss reducing the deficit through raising taxes while the Republicans wanted to use the limit as a negotiation point to reduce the deficit through federal spending cuts. In exchange for raising the debt ceiling and to encourage negotiators to reach a compromise plan, Congress passed the 2011 Budget Control Act. This law threatened draconian budget cuts—$1.2 trillion total—to automatically begin in January 2013 if no budget deal was reached. Sadly, no deal happened then and no deal is being reached now with less than ten days remaining in the year.

The Congressional Budget Office and economic pundits believe that falling off the cliff will be destructive to the economy overall. For example, the sequestration splits cuts equally between military and non-military spending,. For 2013, this is a cut of 8.2% or $109 billion. Many of the changes will dramatically affect U.S. health care. The Budget Control Act cuts 2% of all Medicare expenditures each year from 2013-2021. In 2013 alone, the projected decrease is approximately $11 billion dollars. The automatic 8.2% reduction means that the National Institutes of Health (NIH) would lose $2.5 billion, the Centers for Disease Control & Prevention (CDC) would lose $490 million, and the Food and Drug Administration (FDA) would lose $318 million. However, Social Security, Medicaid, Children’s Health Insurance Program (CHIP) Supplemental Nutrition Assistance Program (SNAP—formerly food stamps), child nutrition and other programs are exempt from the cut. On the military side, while the Veteran’s Administration (VA) is safe from cuts, the military TRICARE health program would also be cut by 2%.

The most immediate and dramatic cut is a 27% reduction in Medicare reimbursement rates. In real money, this amounts to $25 billion dollars less going to health care providers and hospitals. This cut comes from the creation of the sustainable growth formula (SGR) that was part of the 1997 deficit reduction deal. The SGR links physician payments to economic growth as a way to limit the increase in physician payments. However, soon after passage, the rate of growth in health care costs outstripped growth in the rest of the economy. The formula did not take into account a growing population, more expensive care, and patients using a higher volume of services. Thus, instead of providing a measured annual increase in funds, the SGR actually calls for a decrease in funds. To prevent these dramatic cuts, each year Congress has voted to stay the cuts for one year.

Table 1: Summary of Federal Health Care Cuts for 2013 in the Fiscal Cliff

Category Percent Cut in 2013 Dollar Loss in 2013
Medicare – SGR ~27% $25 billion
Medicare – Sequestration 2% $11 billion
Non-military spending 8.2% $2.5 billion NIH;$490 million CDC;$318 million FDA
Military health spending 2% $3 billion


What does this all really mean?
In English, what this all means is that unless a budget deal is reached, Medicare payments to physicians and hospitals will be nearly 30% below Medicare reimbursement rates. This would happen in the year before the full implementation of the Affordable Care Act that adds 25 million new people to the health care system. Many of those individuals will require public support to purchase mandated health insurance. Funding for biomedical research, public health, and health care professional training would also be cut dramatically. Academic medical centers, hospitals, and health care providers are the major losers in this deal. Apocalyptic language in the popular press suggests that hospitals may close and that physicians may have to reduce or cease accepting Medicare patients.

The biggest loser, however, is the average person residing in the United States who will find health care in shorter supply and possibly more expensive. Discussions such as this are reminders that medicine is not always the practice in altruism and service that many believe it to be and that we teach our students it is. At least in the United States where health care is viewed as a privilege and not a human right (except for prisoners), money and politics play a strong role in how medicine functions and whom it serves.

I teach my students that ethics is a process of moral deliberation, a conversation about values. These forced cuts will negatively affect the health of most Americans and will hit those on the lower end of the socioeconomic ladder the most. There is no deliberation here and little discussion of values. The social injustice if this happens is immense since it hits people with low socioeconomic status the hardest.

Many of the problems coming to a head now are the result of non-deliberative thinking in 2011 and 1997. What bioethics can add to this conversation is to help the public, the health care community, and our elected officials to critically think about the options and to remind everyone that these policies are not simply numbers on a page or political votes, but rather are real human lives.

As for Cliff, I hope he has great climbing gear.


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