As the nation stares over the edge of a $600 billion “fiscal cliff,” financial experts say consolidation, cooperation and planning for the worst are the best strategies for physicians to employ next year.
“It seems to me that there’s a perfect storm brewing for physicians in 2013,” says Bill Lewis, CPA, partner with New Jersey-based Cohn-Reznick, a firm specializing in healthcare accounting and business. “Lower income, more compliance costs, higher tax rates, fewer deductions—it’s a recipe for disaster.”
So what’s at Stake?
Looming are the potential expiration of the 2001 and 2003 tax cuts implemented by former President George W. Bush; nearly $1 trillion in across-the-board budget cuts (sequestration), including 2% for Medicare; a new 3.8% Medicare tax on wages and investment income for high-income taxpayers; an excise tax on medical device makers; expiration of the current extended unemployment insurance; a possible 27% cut to Medicare payments due to the sustainable growth rate (SGR); the possible end of a 2% reduction in payroll taxes; the retroactive extension of expired provisions such as the alternative minimum tax patch; and changes to current estate and gift tax rules.
Among the major changes in store for next year, three areas in particular—the so-called fiscal cliff consisting of decreased deductions and higher taxes, Patient Protection and Affordable Care Act (PPACA) implementation costs, and the potential for Congress not to postpone SGR cutbacks—could have a significant impact on most practicing physicians.
• Fiscal cliff. One of the biggest concerns regarding the fiscal cliff is that top income tax rates—currently at 35%—will return to their pre-Bush levels of 39.6%, and today’s 15% capital gains rate will increase to 20%. In addition, tax rates on qualified dividends would rise from 15% to 30% or more, Lewis says. Physician income and investments could be greatly affected by these changes.
Mark Master, CPA, a partner specializing in healthcare at Eisner-Amper in Philadelphia, Pennsylvania, says the fiscal cliff could “turn out to be another Y2K”—mostly hype and little substance. Nonetheless, uncertainty breeds fear, and plenty of that is circulating in healthcare now.
• PPACA implementation. PPACA implementation will continue full-steam ahead with the re-election of President Barack Obama. Scheduled in 2013 are the Medicaid bundled payment demonstration, increased Medicaid payments for primary care providers, Physician Payment Sunshine Act reports, a 2.3% medical device excise tax, the elimination of the employer Part D retiree drug subsidy deduction, a tax increase for high-income beneficiaries of Medicare Part A, and open enrollment for the health insurance exchanges stemming from the PPACA.
In a recent report, PricewaterhouseCoopers (PwC) says the impending deadlines and increased national financial pressures are leading to speculation that the federal government may delay the implementation of state health insurance exchanges. A 1-year delay could save the federal government $23 billion, according to PwC.
Although delaying the exchanges would save money for the government, other stakeholders would suffer, the report notes. Physicians would bear the burden of providing more uncompensated care, and insurance companies would lose out on the $55 billion in health premiums the exchanges are expected to generate in 2014.
• SGR. Congress is being urged, as in years past, to postpone cuts to the SGR in the short term and to fix the Medicare reimbursement system—the current formula was enacted in 1997 as part of the Balanced Budget Act—in the long term. This year’s SGR reduction stands at 27%, plus the 2% proposed cut to Medicare through sequestration. Congress historically has stepped in at the last minute to postpone SGR cuts, but that action would come with an $11 billion price tag this year, PwC reports.
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