Everyone's talking about the looming fiscal cliff, otherwise known as the between-a-rock-and-a-hard-place position the U.S. Government will find itself in if a new budget agreement isn't reached before the end of 2012. Yikes. Sounds scary, right?
The biggest problem is that the conditions of the Budget Control Act of 2011 are scheduled to take effect at that time. And that means -- in a nutshell -- more taxes.
How will seniors be affected?
Like nearly everything involving the Government, the fiscal cliff carries some significant impacts for seniors. Programs like Medicare are slated for deep cuts in funding, to the tune of $11 billion in 2013 based on an across-the-board two percent cut in payments. There's already a 27 percent cut to physician payments set to kick in in January 2013; the two percent is on top of that already-drastic cut. Imagine the number of physicians who will cut back on accepting Medicare patients.
Based on the details of an emerging but tentative agreement between President Obama and House Speaker John Boehner, seniors could receive smaller Social Security cost-of-living adjustments due to a new method for calculating inflation.
According to The Huffington Post, here's how this would work: The new technique used to calculate inflation would be based on the chained CPI (consumer price index), which accounts for consumer substitutions in response to price increases. If pork prices were to increase while beef prices remained flat, consumers may shift their spending habits -- buying more pork and less beef. It essentially takes the law of supply and demand in relation to price changes and applies it to calculating inflation.
The bottom line of chained CPI calculations
The result? After three years, the average Social Security beneficiary would receive $258 less in cumulative benefits. Over the long-term, the effect is much more significant. "If the chained CPI had been in place all along, today an 88-year-old who'd started drawing benefits at age 62 would receive 7.32 percent less in benefits this year, according to the group," HuffPo explains, referencing calculations released by Social Security Works, an advocacy group based in Washington.
In some cases, the cumulative effect could mean at least $1,000 less in annual benefits and $15,000 over the long-term, 16-year period used in the example above.
What else is on the table?
All of these effects are dependent on the specific deal reached by Congress. And other effects may be possible depending on the terms of the agreement, such as raising the Medicare-eligibility age to 67 or asking higher-income beneficiaries to pay more for their coverage.
Other agencies, such as the National Institutes of Health and the Centers for Disease Control and Prevention could face cuts reaching hundreds of millions, or billions, of dollars, reports Medscape. This could mean cuts to valuable services or halts to medical research.
Unfortunately, there's no easy solution to any of this. Cuts must be made, taxes raised or some other method found to balance the budget. With a Republican-led House and a Democratic President and Senate, these agreements are tougher to reach because of drastically differing party views -- although it will hopefully mean a more balanced solution overall. Stay tuned for January 1, 2013.