Why physicians will be sacrificial lambs in future Medicare cuts

This year, total federal spending in the U.S. is projected to be $3.6 trillion. The top three budgetary categories are:

  1. Medicare/Medicaid —  $826 billion
  2. Social Security —  $717 billion
  3. Defense/Wars —  $703 billion

Medicare and Medicaid costs alone account for 23% of total federal spending.

If the magnitude of these projections does not alarm you, let’s look at it from a revenue perspective. This year, the total U.S.tax revenue is projected to be $2.2 trillion. Medicare and Medicaid costs of $826 billion, account for a whopping 37% of total tax revenue! You may logically ask — what about the $1.4 trillion budget shortfall? Not to worry — we can borrow it from China as we’ve been doing for years.

Standard & Poor’s does not have much credibility in my book, but it does make a cogent point. They assert that the U.S. is not in a fiscally sustainable path and that it is essential that we cut $4 trillion from the deficit over the next 10 years. Simply stated, that translates into about $400 billion annual revenue raising and/or budget cutting – an amount that will barely begin to close the country’s budgetary shortfall.

And yet the debt deal reached between the Congress and the President agrees only to a cut of $917 billion over the next ten years, with another $1.4 trillion additional reduction to be determined by a twelve person bipartisan panel.

The good news for physicians and for that matter, anyone in the field of medicine is that the initial $917 billion cut leaves Medicare and Medicaid unscathed. But clearly, this is only a Pyrrhic victory, since there is no way we can extract ourselves from this mess without cutting Medicare/Medicaid, given that it’s the largest budget item and that the other two competing items — Social Security and Defense — are holy cows to Democrats and Republicans respectively.

Worst yet, as the White House made clear in a fact sheet on the debt deal, “Any cuts to Medicare would be capped and limited to the provider side.” In other words, physicians will be the sacrificial lamb again.

The entire U.S. health care system is caught between a budgetary rock and an obligatory hard place. On the demand side, American people are living longer and sicker – judging by the increasing percentage of people who are obese and suffering from chronic diseases. And, in 2014, 15% of the population who are currently uninsured will be added into the health care system, thanks to Obama’s reform. On the budget side, our nation is quickly running out of money to pay health care providers.

If this scenario doesn’t look like a perfect storm for physicians, I don’t know what does.

Michael Zhuang is founder of MZ Capital, an independent wealth management practice specializing in helping physicians achieve financial freedom.

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