If you tune into the news regularly, you have likely noticed the term “fiscal cliff” has become as ubiquitous as holiday commercials. But what exactly is the fiscal cliff, and how will it affect the healthcare industry? Let’s explore. How we got here In the summer of 2011, the United States government hit the “debt ceiling”, which is essentially the limit Congress set for the amount of money the government can borrow at a given time. In the past, raising the ceiling was a formality that Congress easily approved. However, this time Republicans refused to approve the debt increase without a plan to cut spending. So to satisfy the objectors, Congress passed the Budget Control Act of 2011, a series of automatic spending cuts scheduled to go into effect January 1, 2013. The bill calls for across-the-board cuts to both defense and non-defense government spending that lop nearly $500 billion off the federal budget. At the same time, certain tax cuts are set to expire, including the Bush tax cuts of 2001-2003 and the temporary payroll taxes from 2011. New taxes related to the Affordable Care Act are also scheduled to go into effect in 2013. The combination of spending cuts and tax increases could be a significant blow to the US economy. In just one year, the Congressional Budget Office estimates the policies would reduce the gross domestic product by .5% and cause the unemployment rate to climb to 9%. Possible effects to healthcare If the Budget Control Act of 2011 were to go into effect as planned, Medicare spending would be cut 2%, reducing the program’s cost by roughly $99 billion over nine years. During a briefing sponsored by The Alliance for Healthcare Reform, Liza Potetz of Health Policy Alternatives said cuts would apply to the payments Medicare makes to hospitals, doctors, and other providers, as well as monthly capitation payments to the Medicare Advantage and Part D plans. The Medicare cuts could lead to fewer healthcare jobs. Tripp Umbach, a provider of economic impact analysis for hospitals and health systems, published a report that estimates 496,000 healthcare jobs will be lost in 2013, with 766,000 total jobs lost by 2021 if the cuts are implemented. Other healthcare-related agencies would also see their budgets slashed. The National Institute for Health (NIH), Health Resources and Services Administration, FDA, and CDC would also see large budget reductions; $2.5 billion, $600 million, $350 million, and $500 million respectively. In addition, the sustainable growth rate (SGR) is scheduled to take effect at the start of 2013, cutting physician payments by 27%. Possible alternatives The Budget Control Act of 2011 was never intended to be implemented, said William Hoagland of The Bipartisan Policy Center, who also spoke at the briefing. The Obama administration expects Congress to pass an alternative deficit reduction package; however, what that package will look like still remains to be seen. According to Hoagland, some of the proposed alternatives call for even bigger reductions to healthcare spending. “Quite frankly any decision that is made on the terms of a balanced approach to addressing our fiscal long-term outlook, most budget plans on the table take more out of healthcare than is what is in the sequester over the next ten years.” Other possible cost containment alternatives to Medicare cuts include fast-tracking certain Accountable Care Act programs. Hoagland said demonstration programs such as the bundled payment program and Accountable Care Organizations could become mandatory sooner in an effort to get away from the fee-for-service model. Other cost-containment proposals include increasing the Medicare eligibility age to 67, capping federal healthcare spending, and reducing payments to providers. Only time will tell whether Congress will draw up a plan to avert the fiscal cliff or take us over the edge. Many experts expect Congress to debate the issue up until the final hour. Others think a deal will be struck well after the beginning of the year. After all, the idea of the fiscal cliff is a bit misleading. The effect of the cuts and taxes will have a more gradual, sloping effect on the economy, not so much an immediate drop off the “cliff.” For example, the automatic cuts planned for Medicare will not go into effect until February. With that said, it’s still too soon to tell what specific changes will come to the healthcare industry as a result of the fiscal cliff, but change is coming.