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Health Care Reform:

Health Insurance & Affordable Care Act

What Federal Budget Cuts Could Mean to Health Care


While the mandated budget cuts are threatening in the short run, experts said the real challenge lies down the road. For instance, the combination of an increasingly tight federal budget and the growing number of retiring baby boomers could bring the financial challenges facing Medicare -- the government-run insurance program for older Americans -- to a whole new level.

"The real issue that the public should be concerned about is, what do the president and Congress plan to do next [fiscal] year, Oct. 1? They're twiddling their thumbs right now and what we need is a functioning government," said Joseph Antos, a health policy expert with the American Enterprise Institute in Washington, D.C.

Some predict measurable fallout from the budget cuts as soon as the next few weeks.


The nation's 3,500 hospitals are reimbursed largely by Medicare; Medicaid, the government-run insurance program for lower-income Americans; and private insurance. But only Medicare payments would be affected by the anticipated budget cuts.

Yet some say the showdown between Obama and Republicans in Congress could cause a sea change in the federal government's approach to reimbursing hospitals.

"We now [face] a situation where the reimbursement rate-setting process is heavily impacted by deficit-reduction strategies," said Ken Perez, director of healthcare policy and marketing at MedeAnalytics, a health-care performance management firm in Emeryville, Calif. "In the old days, payments weren't based on what the government could pay, but by what was considered fair."

Perez said the anticipated $1.3 million reduction to the average hospital's revenue by the mandated cuts would likely lead to a loss of about 25 full-time positions. He added that already -- between last October and January -- 60 hospitals that he knows of have laid off employees. "There's a clear relationship between any suspected reductions [in revenue] and laying off people," he said.

Henry Aaron, a senior fellow at the Brookings Institution, in Washington, D.C., agrees. "Hospital margins are typically quite small and with some exceptions, there will be some institutions so close to the edge already this will put them in a state of crisis."

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