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While employees of the Department of Justice snack on $18
muffins, there are as many as 4.2 million Americans that are about to experience
significant financial upheaval, and millions of others who will suffer the
consequences of a derelict Congress. One million of them are physicians and
health care professionals that care for Medicare patients. The other 3.2 million
are long term unemployed who haven't found jobs and whose benefits have either
run out or are about to disappear.
Two significant developments are getting close to occurring, which will, if they are allowed to develop fully, exacerbate the current economic crisis beyond levels not seen since 2008. The first one is the fact that, unless Congress acts, there will be a 27.4% cut to payments received by physicians and other medical services providers that treat Medicare patients effective January 1, 2012.
According to a November 1, 2011 press release from the Center for Medicare and Medicaid Services (CMS) "The Centers for Medicare & Medicaid Services (CMS) today issued a final rule with comment period that updates payment policies and rates for physicians and nonphysician practitioners (NPPs) for services paid under the Medicare Physician Fee Schedule (MPFS) in calendar year (CY) 2012. More than 1 million providers of vital health services to Medicare beneficiaries – including physicians, limited license practitioners such as podiatrists, and NPPs such as nurse practitioners and physical therapists – are paid under the MPFS." The press release continues: "CMS is required to issue a final rule that reflects current law. Under current law, providers will face steep across-the-board reductions in payment rates, based on a formula– the Sustainable Growth Rate (SGR) – that was adopted in the Balanced Budget Act of 1997. Without a change in the law from Congress, Medicare payment rates to providers paid under the MPFS will be reduced by 27.4 percent for services in CY 2012 —less than the 29.5 percent reduction that CMS had estimated in March of this year because Medicare cost growth has been lower than expected. This is the eleventh time the SGR formula has resulted in a payment cut, although the cuts have been averted through legislation in all but CY 2002. The Obama Administration is committed to fixing the SGR and ensuring these payment cuts do not take effect."
You read that right. On January 1, 2012, any physician or practitioner of allied health that works for Medicare will essentially have their income cut by nearly one third. That means that a $100,000 per year salary may fall as low as $72,600 for the year. On a monthly basis, a $9,3333.33 salary will fall to $6050, all at once.
We're not being alarmist. We're just making sure that at least our readers are aware of what may happen to them or their loved ones in January. If you're a health care worker, you will be adversely affected. You may not just lose income, but you may lose your job. If you work for a hospital system, you may keep your job. But if you are a private physician, are part of a group medical practice or work in such a setting as a nurse, a therapist, or even as an office support person, this will affect you, significantly.
If you're a patient, your doctor may not be able to see you, since your care may require more of his time and effort that he is being reimbursed for, especially when the same government that is cutting his reimbursement is making him spend more money to upgrade his practice to an electronic medical record system which costs thousands of dollars to install, and thousands of dollars per month to keep up.
And if you are in an emergency situation, your wait time at an emergency room is likely to increase, as Medicare and Medicaid patients may have to flock to the E.R. to get routine care as their doctors stop participating in those government sponsored plans.
Furthermore, as your private insurance premiums rise, expect your health insurer to fall in line with Medicare and also cut reimbursement to physicians. That will likely lead to more doctors opting out of joining insurance networks from the likes of Aetna, Cigna, and United Healtcare.
The second significant issue is the fact that more than 50% of the unemployed are losing their benefits. That will increase the number of people that will have even less access to health care and will flock to the emergency rooms. Even in Congress re-establishes the 99 week limit for unemployment benefits, the majority of recipients have been out of work longer than 99 weeks and would not be eligible for more benefits.
That would push millions more onto the Medicaid, Medicare, and food stamp programs. But if doctors won't see them, the government will just be putting money into the air, unless you count the emergency room.
Already the number of food stamp recipients is at a record of 46 million people, or nearly 20% of the U.S. population. According to the Associated Press, the number of people seeking government disability services has increased by 50 percent since 2007. According to some economists, the removal of unemployment benefits from the economy could drop GDP by up to one half of a percentage point. What's even more significant is what may happen when one million well paid professionals lose one third of their income in one fell swoop at the start of 2012.
That will likely remove billions from the economy which will be felt accross the board. The average professional is a large user of a wide array of services, including dry cleaners, restaurants, gas stations, coffee shops, hair salons. Consider the effect on the luxury goods and services segments, which are large contributors to the tax base via their sales.
We're not sure that Congress has thought this through. Yet, maybe they have thought it through and don't really care what happens.
Our take is that it's probably a little of both. It's getting close to the election and they are in job saving mode.
Conclusion
This time around, the doctor payment issue could be like all the others. Some kind of partial fix and delaying of a real solution may come in at the eleventh hour.
We've written about it enough times in this space to be sure. Yet, there is a certain feeling in the air that this time is different. The situation in Greece is a perfect example of how an entire country, both the people and the politicians could be incredibly wrong yet continue down the wrong path.
It could happen here too. The problem is that if the Medicare cuts go into effect, there will likely be many people in the U.S. that lose their lives. Many of them shouldn't. But they may if they have no access to health care. Congress has no idea as to how fed up with their lack of understanding the medical profession is at this time.
No one will say it. But we will. We've spoken to enough doctors and high level professionals with "limited licenses" to know.
Beyond the health care disaster, though, there will be an economic effect, which will also be very negative. Congress doesn't seem to get that either.
If you add the long term unemployment picture to the equation, you can see that there is a major set of issues that lie ahead just after the holidays. Enjoy them. They may be the last pleasant ones any of us experience for a long time.
When you understand the big picture, the next step is how to survive and profit from what lies ahead. That's why we recommend: "Market Timing For Dummies." and "Trading Futures For Dummies." The Trading Manuals for All Seasons. Also Available As Kindle Books.
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Chart Courtesy of StockCharts.com
Shares of Currency Shares Euro ETF (NYSE: FXE) seem to have failed a key test of technical resistance while the SPDR Dow Jones Industrial Trust ETF (NYSE: DIA) Is Holding Above key support.
Chart Courtesy of StockCharts.com
The relationship between the Euro and U.S. stocks may be difficult to correlate in the next few days as the situation in Europe develops. In the U.S., there will be a whole new set of worries to consider. The first will be what the Congressional Super Committee does with regard to trimming the U.S. budget deficits and U.S. sovereing debt.
The charts are saying that the Euro is heading lower. That makes sense given the situation in Europe, with Greece in turmoil and Italy possibly circling the drain.
U.S. stocks have yet to break down totally. While the FXE ETF has failed to remain above its 20, 50, and 200-day moving averages, the DIA ETF is above all of its key trend lines. That means that the action this morning and this week will be crucial to both.
The important question is whether any further weakness in the Euro will drag down all global bourses with it, including the U.S., or whether the financial markets start to move away from Europe as the pivotal set of issues that drive trading.
On an intuitive basis, it makes sense to bet that the Euro will drag everything down with it, if it goes. But that's not necessarily going to hold up. We have to see what develops before making any huge bets, as the situation is too risky and the markets are too volatile.
The bottom line is that the relationship between the Euro and global stock markets is now at the center of the trading decision making apparatus in the world. We need to see what happens as this situation develops in order to avoid trading mistakes and major losses.
For more details on how analyze intermarket relationships and how to use technical analysis in your daily portfolio managmement buy "Market Timing For Dummies" and "Trading Futures for Dummies." Visit our bookstore.
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