Besides the looming "fiscal cliff" at the end of the year-when the Bush tax cuts expire, the "sequestration" cuts (part of the 2011 budget agreement) will begin, and the federal debt will hit the ceiling again-we also face a "health care fiscal cliff," which magnifies all the problems stemming from the financial cliff. In fact, we can't fix one without fixing the other.
1. The Medicare "Doc Fix" - Unless Congress acts by January 1, physicians treating Medicare patients will see an average 27 percent cut in their Medicare reimbursements, the result of 1997 legislation, referred to as the "sustainable growth rate" (SGR).
The legislation was an unsuccessful attempt to control Medicare spending by cutting physician reimbursements if Medicare spending grew faster than a predetermined level-which it regularly does. However, Congress has repeatedly passed legislation to temporarily postpone the cuts-hence the term "Doc Fix"-thus undermining any pretense of spending control.
Those temporary suspensions have been adding up so that if Congress does nothing, physicians will see their Medicare reimbursements drop by about 27 percent starting January. A new survey of 1,000 physician group practices found that 45 percent of doctors would cut back on new Medicare appointments if the cuts take effect.
A permanent budget fix-which ObamaCare initially included but then dropped-costs north of $300 billion, which very few in Congress are willing to vote for. But even a temporary fix will cost billions of dollars. Everyone expects Congress to postpone the cut, yet again, but the Doc Fix will take money from other areas, making it harder to close the budget gap.
2. New Taxes on the Way - Many economists argue that a recession or slow economy is the worst possible time to raise taxes. Not President Obama; the man is a taxing machine. ObamaCare includes some 20 new taxes, many of which hit middle-income families-despite the president's repeated denials that he raised taxes on the middle class.
One of his biggest tax hikes begins January 1: an increase in the Medicare payroll tax from 2.9 percent to 3.8 percent for individuals making more than $200,000, and families above $250,000. The estimated revenue is $318 billion over 10 years.
And while a .9 percentage point increase may not seem like much, if Obama can repeal the Bush tax cuts for high-income families, the higher Medicare tax will be added to an income tax rate that jumps from 35 percent to 39.6 percent. Thus taxes will be higher on those families than they were in the Clinton years-not the same level, as Obama repeatedly claims.
More importantly, the dividend tax will nearly triple, from 15 percent to 43.4 percent (because dividends will be taxed at the income tax rate plus, for the first time ever, the Medicare tax). The capital gains tax will also rise, from 15 percent to 20 percent, plus, again for the first time ever, the 3.8 percent Medicare payroll tax.
So do you think tripling the dividend tax and a 50 percent increase in the capital gains tax might, just might, have an impact on investment decisions at the very time we need people doubling down on investment?
Obama keeps claiming he wants the rich to pay a little more. Well, they will beginning in January, because of his Medicare payroll tax increase.
3. The Medicaid Explosion - If you think a lot of people are on the welfare rolls now, it's about to get much worse. ObamaCare swells the roles by an estimated 16 million people-by putting them in Medicaid, the federal-state welfare health insurance program.
Even before ObamaCare became law, states were struggling with how to pay for the program-especially in an economic downturn that's kept millions of Americans unemployed and uninsured for years. And ObamaCare exacerbates Medicaid's financial unsustainability by increasing the Medicaid roles by about 25 percent.
Yes, the federal government will pick up the tab for the newly qualified enrollees for a few years. And Medicaid reimbursements will rise to the level of Medicare for a few years, an effort to stem the growing trend of physicians refusing to take Medicaid patients because of low reimbursements.
But the states still must cover new Medicaid enrollees who had been eligible but never enrolled, and they are responsible for all of the new administrative costs. The Heritage Foundation estimates total state costs for Medicaid expansion at $42 billion (2014-2022). Those cost increases have driven several states to consider opting out of the expansion-an action that the U.S. Supreme Court says they can do.
Medicaid has become the largest budget item for many states, and growing. They are having to cut back on education and other important budget items just to pay for Medicaid growth, and that will only get worse over the next few years.
4. Exchange Subsidies - And then there are the health insurance exchanges, which will provide federal subsidies on a sliding scale up to 400 percent of the federal poverty level ($92,200 for a family of four). An estimated 18 million people will receive the subsidies at a cost of ... wait for it ... $1.2 trillion over 10 years, according to the Congressional Budget Office. And that all cranks up in a little over a year.
Yes, we are facing a fiscal cliff, but we are also facing an entitlements cliff and, thanks to ObamaCare, a health care cliff. Those three cliffs aren't separate; they're intertwined. Go over one and we will be pulled over the other two.