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What Will the Fiscal Cliff Mean to Health Care?

Your doctor might not look this happy if Medicare is cut.

Unless you have been living in a cave, you are likely familiar with the Fiscal Cliff and what will happen with taxes if Washington fails to act and we go over the edge.( Street Smart Finance had a great post on that if you need more information). One other part of the “Fiscal Cliff package” would mean that Medicare payments to doctors would be cut by 27%. Most people are very concerned, and rightfully so, about tax increases, but the Medicare cuts seem to be sort of an afterthought. Perhaps you aren’t near Medicare age and are having enough problems finding a good insurance plan that you can afford. Maybe you think doctors charge too much, and they need a pay cut. Regardless, if Medicare does cut doctor payments by almost 30%, we can expects some negative impacts on our health care system.

Doctors Charge Too Much

I’ve heard this argument a million times, and I do believe the sticker price on many health care services is too high. However, most doctors don’t get paid the prices they charge. By being a provider for an insurance carrier or government plans like Medicare and Medicaid, doctors agree to accept assignment. That means that they are contractually bound to accept what the plan pays for a service, and they aren’t allowed to bill the patient for overages on covered procedures. Most private insurance companies set their rates around what Medicare pays. You can bet that if Medicare cuts payments, private insurers will as well. Seniors are never the only ones affected by Medicare cuts.

An example that I see very often is with cataract surgery. The surgeon’s rate in our area is about $2500 for that procedure. Medicare pays around $800. That is why you should never feel bad about asking for a cash discount or “the Medicare rate” if you have no insurance. You know the surgeon willingly takes $800 on many cases, so it would be fair to assume that he or she will take less in private pay without the hassle of billing an insurance.

Doctors Will Drop Plans

How much of that $800 will surgeons be willing to cut before they say no more? Providers may decide not to participate in health plans, therefore, if you have Medicare or an insurance that cuts fees as Medicare is set to do, you may not be able to find a doctor who accepts your plan. In this situation, you will be forced to put off procedures or pay out of pocket and file for reimbursement from your insurance. Have you looked to see how much your insurance reimburses for out of network providers? Not much. Plus, you will be submitting the paperwork and dealing with billing issues on your own.

Volume Will Need to Go Up to Replace Revenue

Not every doctor will decide to stop participating in Medicare or similar paying plans if fees are cut. However, if you get a 27% pay cut, you will most likely try to find a way to increase your income. The only way to do this is to see more patients. If you think you only get 5 minutes of face time with your provider now, that will likely decrease.  Another way to increase revenue is to limit the number of patients with lower paying plans that you schedule. Doctors might take mostly private pay patients or those who pay extra for premium insurance plans and limit patients with Medicare or poorer paying plans to a few per day. If you have a plan that pays poorly, you will have to wait longer for an appointment.

You Might  Have to Make Multiple Visits. 

Currently, Medicare has some funny rules about examinations and ancillary testing on the same day. In my practice, if I determine that a patient might have glaucoma, there are three automated tests that are standard of care in glaucoma diagnosis. Those can all be done in one day, meaning that the patient only has to be dilated once. However, Medicare and many insurance plans will only pay for two on the same day. I usually go ahead and do the other one and write it off. The others pay pretty well, and it’s easier on the patient. If I didn’t get paid well for those procedures, I would have to make the patient come back for another visit to bill the other test. Doctors will have to bill every visit and service to maximize revenues, even if it means more visits for patients.

Long Term Consequences

If we do fall off the fiscal cliff and Medicare cuts are here to stay, I see another long term consequence; fewer providers. Medical doctors go to school for 8 years, then complete another 3-5 year residency. Unless you are independently wealthy, most doctors come out of school owing six figures in student loans. It is almost impossible to work a part time job in medical school or residency, and you can’t do a semester here and there as your budget allows. You can’t get a medical degree by going to night school. You pretty much have to suck it up and know you’ll be poor and in debt for many years with the promise of a high paying job at the end of the journey. If there is no high paying job at the end of the tunnel, no one is going to go through that amount of training,and there could be a huge shortage of doctors. An even worse thought is that medical schools would have fewer applicants, and it would become easy to get into school. I’ve always thought that medical students were some of the brightest and hardest working people out there. If you can barely skate by and get into med school, what does that say for the quality of health care in the future?

Before you decide to move to Canada, know that the American Medical Association and other medical lobby groups are extremely powerful and will most likely find a way to either avoid or delay huge cuts to Medicare. This isn’t the first time large cuts have been on the table. However, if there is not some sort of workable solution, instead of across the board cuts, we could be in for a rough ride in the future. I’d listen to DC and get my health savings account maxed out right now!

Do you pay much attention to Medicare? What is your biggest concern with health care cuts?

About Kim Parr

Kim Parr is a private practice optometrist, freelance writer, and personal financial blogger. You can follow her journey to 20/20 financial vision at Eyes on the Dollar.


  1. I never gave much thought to its affects on Medicare, but what it could do does not surprise me at all. Like I’ve said before we don’t know what the hot air in Washington will do so we can only control what we control. We’re going to be doing what we can to fund our HSA as much as possible.
    John S @ Frugal Rules recently posted..A Frugal Person’s View on Holiday TippingMy Profile

  2. Thanks a ton for the mention at the end. As someone who almost died from asthma in first grade and has been dealing with medical issues ever since, health insurance and health care is something that is very important to me. Not to mention I do work in the health insurance industry (of course, all opinions are my own). I do not work in the Medicare & Medicaid part of the industry but I am trying to pay more attention and learn more about that particular area so that I have a more “well-rounded” knowledge base.

    It’s very important that our doctors and surgeons get paid and do not have to worry about getting paid. With inflation factored in, it’s hard to stomach the fact that there could be a 27% cut in pay for procedures. Doctors are in some cases “well-off” but they worked their butts off to get where they are and I personally look at their schedules and what they sacrifice with on-call emergency service and I think they deserve to pay be compensated well. We can have subsidized care through Medicare, Medicaid, and the Health Exchanges but we sure as heck better start balancing revenue with expenses before the whole system collapses.
    DC @ Young Adult Money recently posted..Is Collecting things a Waste of Time and Money?My Profile

    • Excellent comment. Cuts seem like a good idea to fund it, but if there are no providers, not a very good plan. You might be the only person who loves HSA’s as much as I do!

  3. All very good points and I think it illustrates just how far reaching the consequences would be if we ‘fell off’ the fiscal cliff. I think there are those in just about every industry that would be able to list some effects that would take place. It really will impact everybody if nothing gets done. I’m still confident a full ‘fall’ will be avoided. My biggest hope is that they actually do something that is longer lasting. I don’t want to have a fix put in only to be going through this entire ordeal again in 12 months.
    Money Beagle recently posted..Get Your Rental Deposit Back After You Move OutMy Profile

    • It does seem like an elementary school fix to pass the buck, but we really need people to get in and make hard decisions that might not be popular. I’m very doubtful that will happen.

  4. One of my friends is a speech pathologist who mostly works with medicare patients in nursing homes. She has been telling me about all of the Medicare cuts and how they are affecting her patients. At first, I was horrified. However, after thinking about it a little bit…I started wondering why Medicare is paying for speech therapy in a nursing home. Is that the best way to spend those dollars? I hate to sound insensitive….but seriously?
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    • Would depend on who is getting speech pathology. If the person is in a home to recover from a stroke and then is able to function and go home, then OK. If it is someone who is terminal or has advanced Alzheimer’s, then that doesn’t seem like a good use of funds.

    • Speech pathology provides a variety of services. In a nursing home, some patients may have swallowing issues that can be helped by an S-LP.

  5. My wife works in the healthcare industry and the practice that she is in has stopped accepting Medicare a few years ago due to the cut in payments. There are many private practices that have also cut it out in my area due to the lack of payments and short-changing the government does. There are a lot of issues with the US healthcare system and it will take many years to fix.
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    • I don’t know if it can be fixed at the rate we’re going. My guess is they will eventually make Medicare for the poor only and those with income will have to pay for private insurance.

  6. You pointed out all the concerns that we should have. Most people do not think about these things until it affects them. Many doctors will not see a new medicare patient. There will be a significant shortage of doctors unless something changes.
    krantcents recently posted..Is College Worth It?My Profile

  7. I heard from NPR that the Medicare cuts are actually planned cuts set up years ago according to a formula, but Congress has been putting it off each year.
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  8. Being married to a physician, I’m all about following the cuts. That said, I’m conflicted. While cuts affect me directly, clearly the system is broken and needs to be fixed. Is this a fix? I don’t think so (as you point about above).
    AverageJoe recently posted..The Worst Gifts Ever: Crystal Frogs, Re-gifted Candy and More Bad Holiday “Fun”My Profile

    • There are many, many procedures that need to be cut. For example, if someone has eyelashes that are ingrown and I pull out ten. I can bill for each eyelash, $500 for 2 minutes off work. I don’t because I think that’s unfair, but you can bet lots of people do. We need to reexamine all the fees and cut the stupid ones. Office visits are not stupid.

  9. Great insight — and now I won’t move to Canada, thanks! :)
    Kathleen, Frugal Portland recently posted..Did I save half my income?My Profile

  10. In France health care is heavily subsidized and we have a big deficit. To cover that the government hasn’t raised the fees doctors have to charge by law for years. A dentist charges $60 for a root canal, even in Guatemala it costs over $100 with a decent dentist. Meaning doctors have to work a lot to earn enough and do the strict minimum or try to force you to have expensive procedures you don’t need.
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  11. Thanks for this interesting article. I admit I haven’t given this much thought and didn’t really relate it to the fiscal cliff until now since I didn’t see medicare cuts affecting me.
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  12. I know a woman who is in her 80s and in good health. She goes to see her family Dr. 2-3 times a week. She doesn’t drive so needs to find someone to give her a ride. When she tells the Dr. she can’t make it he has one of his assistants pick her up.
    I’m fairly certain he’s using her to milk medicare because she’s in and out within 10 min. It’s cases such as this that make me questions the whole system.
    Justin@TheFrugalPath recently posted..Time Saving Tips for CouponersMy Profile

    • That seems a bit odd. I’d like to think it was legit, but who knows. I know that happens. It could also be that she has some chronic condition and has not put her foot down that she doesn’t want to go to the office. Sometimes you have to do lots of seemingly unnecessary things on the premise that if you don’t and she dies, her family might sue you. That’s why I think all Medicare patients should have to state what level of care they want to receive.

  13. Very thorough Kim! This made me think on your “multiple visits” point. I was tempted to ask my sports doctor why I had to repeatedly come back for check ups on rehab when I was just hoping for cortisone injection for my shoulder injury? Does he realize I have to pay $30 every time I visit??
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  14. There will be a lot of unintended consequences that go along with the fiscal cliff as well as ObamaCare. Unfortunately, it will be hard to predict exactly what they could be. Just like the loose money heading into Y2K that led to an internet stock bubble and subsequent burst and the real estate bubble that followed.
    JT recently posted..Hoping the Rental House Refinancing Works OutMy Profile

  15. It’s very interesting the number of hoops that medical professionals and patients have to jump through to get their money or get paid! I’ve never had the experience of negotiating for medical services here in Canada.
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  16. Kim, this is a superb write up. I work in healthcare as a IT Project Manager for a large multi-location Clinic. From what I see (and I don’t see everything behind the curtain) what you are saying is spot on. There is not much else I can add. :)
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  17. Thanks for that insightful analysis of what the future may hold.

    I haven’t packed my bags for Canada yet, but I’ll keep them handy, just in case.
    Terry recently posted..Follow Schwarzenegger’s Advice to Put Fuel on the FireMy Profile

  18. I feel like the fiscal cliff is a distraction. Why did I only hear about it after the election? And what other things are happening while everyone has their eyes glued to the freakin’ fiscal cliff?
    mbhunter recently posted..Save money when you cut the cheeseMy Profile

  19. We are witnessing first hand the problems that occur when the government becomes the biggest purchaser of any good - changes have a profound ripple effect - as you spelled out in detail.

    Also, any entitlement program tends to grow over time. Once a target group has an entitlement, taking it away is extremely difficult. We are at the fiscal cliff now, and as baby boomers begin swelling the ranks in Medicare things will only get worse.
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