How does the country's economic future look as we peer over the edge of the "fiscal cliff"? Will Congress take action and avoid the expiration of tax cuts and sequestration? And how will all this impact the Patient Protection and Affordable Care Act? These are questions that every financial leader should be pondering. A legal and a legislative expert offered their thoughts on what may happen next.
Mark E. Lutes, a healthcare attorney with the national law firm Epstein Becker Green and William C. Oldaker, a member of the Washington, DC–based consultancy National Health Advisors, discussed the post-election regulatory agenda in a webcast last week.
One of the most intriguing points which the pair agreed on is that, although the reelection of President Barack Obama would seem to protect the PPACA from additional scrutiny, the need for bipartisan support to prevent sequestration may spark additional changes to healthcare reform. While the PPACA cleared two significant hurdles this year—the Supreme Court's decision to uphold the law and the Presidential election—Lutes said there are more bumps in the road ahead.
"After those [hurdles], many thought it would be smooth sailing—the land of milk and honey for healthcare reform," said Lutes. "It will probably come as a rude shock to health reform supporters that portions of the ACA may not be out of the woods yet. There may not be a legislative majority for appeal, but issues could still arise because key elements of the ACA's axis could be a tempting target during deficit reduction discussions."
Oldaker and Lutes speculated that many aspects of the PPACA could become pawns in the budgetary negotiation process during the current lame-duck session. While House Republicans want to avoid the defense cuts that are lined up if sequestration takes effect, the Democrats would like to avoid domestic spending cuts and bring in some "upper-income revenue to the party," Lutes says.
"For me, the $99 question is: What are the chances that the lame-duck deal will affect ACA funds, such as the funds slated for Medicaid expansion or the funds for the [health insurance] exchange enrollment subsidies?" questioned Lutes.
Democrats will seek to protect these funds, Oldaker said. "They are down at the bottom of the list that the administration will agree to, but they'll be on the list that the Republicans put forward. The President will try to protect both the exchanges and Medicaid expansion as much as possible."
With such a tight popular vote for the Presidential election, Oldaker believes we can expect to see President Obama more willing to work with Republicans and "in the mood to negotiate" to get bipartisan support to resolve the fiscal cliff before it transpires.
"The day after the election, [House] Speaker [John] Boehner [R-OH] fired the starting gun on this race ... saying he was ready to work with the President to resolve the fiscal cliff but that ‘real change to the structure of entitlement programs' needs to be a part of the solution, along with spending cuts and revenue increases from tax reform," said Lutes.
President Obama has vowed not to allow sequestration to occur, but he'll need to woo Republicans in order for that to happen, which will require compromise and that puts tenets of the PPACA in play.
"Republicans don't want the $1.2 trillion cut—which is half domestic and half defense—to go into effect, either. So, there has to be negotiations to figure out how to get this done," said Oldaker.
Lutes noted, however, that the President seems to be sending signals to Republicans that he's "open to compromise and open to new ideas," as long as the approach is balanced.
With the fiscal cliff commanding the attention of Congress, and keeping healthcare financial leaders on the edge of their seats, legislators will need to work fast.
Despite the negotiations to come over the specifics of healthcare reform, Oldaker said the law unquestionably here to stay. "What's unassailable from this election is that the ACA is now going to be permanent and the regulations will be implemented," he says. "Watch for a flurry of regulations coming out in the near future. And the [health insurance] exchanges will be implemented to the extent that each state wants to implement them."
Beyond PPACA
Oldaker noted that what's going to happen in healthcare in the coming year goes well beyond PPACA. Healthcare, as a part of the national budget, will be subject to rigor as legislators look to make cuts.
"Beyond reform, healthcare is such a substantial portion of the federal budget that it will be under attack in the coming year," said Oldaker. "The discussion [between Republicans and Democrats] will go in two parts: one on sequestration and the other on revenue. The President realizes if he can't get agreement on revenue and then the tax cuts expire, it will be an issue."
Of the $3.6 trillion the U.S. government spent in 2011 (which accounts for nearly 24% of the nation's gross domestic product), $2.2 trillion was financed by federal tax revenues and $83 billion by excess profits on assets held by the Federal Reserve. The remainder—$1.3 trillion—was financed by borrowing, which will be paid with future tax revenue. The largest share of that $3.6 trillion, 21% ($769 billion), went to healthcare: Medicare, Medicaid, and the Children's Health Insurance Program (CHIP). In comparison, 20% ($718 billion) went to defense and international security assistance, 20% ($731 billion) went to Social Security, and 13% ($466 billion) went to safety net programs. The government also spent $230 billion (6%) on interest on the national debt.
Currently there is a 2% across–the-board cut on Medicare reimbursements, and Oldacker says healthcare organizations can expect that to remain in effect at least for a few months into next year.
Though politicians have talked about compromise after the election, over the last four years Democrats and Republicans in the House and Senate have failed to do so, which has stalled numerous pieces of legislation. With the political landscape changing very little after the 2012 election, the question looms: can legislators set aside differences to keep the economy from sailing over the edge of the fiscal cliff? That's perhaps the most unpredictable element of attaining a resolution to the problem.
"At the end of the day, I think Congress will act in a way so as not to allow sequestration," says Oldaker. "But that's only part of the problem; they'll still have to get a budget agreement to lower the deficit."
Karen Minich-Pourshadi is a Senior Editor with HealthLeaders Media.
