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Sequestration and Why You Should Care

By Dr. David C. Pate, News and Community
February 28, 2013

The numbers and the political divide

Our federal government is spending about $3.8 trillion per year.

No one can imagine a trillion of anything, so let’s break it down to what is spent every day, including weekends and holidays. On average, it’s $10.7 billion. A billion is still hard to conceive of, so look at it as $445.8 million dollars per hour, or about $7.4 million dollars per minute. 

Now, whether spending $3.8 trillion is a problem or not depends upon how much money the government makes, primarily through taxes. That amount is about $2.6 trillion, though it will go increase some due to this year’s increase in payroll taxes and the elimination of the Bush tax cuts for higher income wage earners. 

The difference between the yearly amount of spending ($3.8 trillion) and the yearly amount of income ($2.6 trillion) is the federal deficit, which is now about $1.2 trillion.

Now, whether the deficit is a problem or not depends upon whether this is a pattern or a one-time occurrence and how much debt there already is. Unfortunately, we have now had deficits of more than a trillion dollars each of the past four years, so there is a pattern of adding significantly to our debt each year. 

The national debt is at $16.5 trillion, and with our country’s gross domestic product (GDP) now hovering near $15.8 trillion, most would agree that our debt is very high, and many people have come to conclude that this national spending pattern is unsustainable. After all, no one can continue to spend more than they make and borrow more than they earn for an extended period of time. Anyone remember the housing bubble?

But a crisis is often in the eye of the beholder. And whether this is a crisis or not depends upon whether you believe the country’s earning potential will increase soon or whether there are opportunities to increase revenues through increasing taxes, eliminate so-called tax loopholes, or reduce spending.

Here comes the sequester

Through the Budget Control Act of 2011, Congress and the president agreed that sequestration, an across-the-board, 2 percent cut in federal spending with some exceptions, would be triggered at the beginning of this year unless a 12-member Joint Select Committee on Deficit Reduction was successful in identifying at least a $1.2 trillion reduction in the federal deficit over 10 years that Congress would accept and implement by law.

It was meant to be painful for both sides, including military cuts that the Republicans don’t want and cuts to entitlement programs, Medicare, that Democrats don’t want.

The Joint Select Committee on Deficit Reduction was not successful. In the grand deal arrived at by Congress when confronted with the even bigger “fiscal cliff” – the simultaneous convergence of the expiration of the Bush tax cuts that would affect nearly every working American, a 2 percent payroll tax increase for nearly every working American, the imposition of a host of new taxes created under the health care reform law, and the imposition of the sequester on top of all of this – the Bush tax cuts were allowed to expire only on higher income individuals and families, the payroll tax increase was permitted to increase on most everyone, and the sequester was delayed until March 1. Tomorrow.

Congress also delayed the scheduled, nearly 30 percent cut to the Medicare physician fee schedule through the end of this year. To read more about all of this, go to http://drpate.stlukesblogs.org/2013/01/03/vertigo-the-fiscal-cliff-national-debt-and-st-lukes/.

So, here we are. I see no signs of any bipartisan agreement that will achieve the spending cuts or revenue increases, or combination thereof, to reach the targeted $1.2 trillion deficit reduction and forestall the need for the sequester, and few signs of any bipartisan agreement that will once again delay its imposition.

What’s next?

The spending cuts for this fiscal year, which would end in September, would be $85 billion. There will undoubtedly be job losses, primarily government jobs, and the local economies and businesses of communities with a large federal presence may be adversely impacted. Businesses that are dependent upon federal grants and reimbursement, such as colleges, universities, and hospitals, are also expected to be impacted and may resort to layoffs, eliminating positions, or not hiring. 

The Congressional Budget Office (CBO) projects that the unemployment rate is expected to remain about 7.5 percent through 2014. If that happens, 2014 will be the sixth consecutive year that unemployment has exceeded 7.5 percent of the labor force – the longest period in the past 70 years. 

The impact on our economy isn’t entirely clear, but with new and significant tax increases imposed in January, and significant spending cuts imposed by the sequester on top of an already high level of unemployment and slow economic recovery from a severe recession, there is fear that contraction of our economy could result and cause a second, double-dip, recession. 

What’s next for St. Luke’s?

Through the savings we are generating through our implementation of lean principles that we apply as TEAMwork, St. Luke’s plan to weather the storm. We do not expect to lay off any of our people, and if cuts are later reversed, we plan to pass savings on to the insurers and our patients.  To read more about TEAMwork, go http://drpate.stlukesblogs.org/2012/11/27/what-does-car-manufacturing-have-to-do-with-health-care/ and http://drpate.stlukesblogs.org/2012/02/07/what-does-airline-safety-have-to-do-with-us-lots/.

Is there a silver lining?

It’s actually not all bad news. The budget deficit would be predicted to decrease from $1.3 trillion to $845 billion, the lowest deficit as a percent of GDP since 2008. And if left in place, the deficits would be projected to continue to decrease, depending on what Congress decides to do with another self-imposed crisis – the debt ceiling – but that is a subject for another day.

Affordable care is what Idahoans deserve

Regardless of what happens in Washington, we of St. Luke’s must remain focused on transforming health care. We realized long ago that health care costs are unsustainable, and we have committed to fixing what is wrong with health care delivery and creating better health for the people we are privileged to serve, better care resulting in the best possible outcomes, and lowering the total costs of care.

 We are in the early stages of our journey, but have already accomplished a lot, and this is a big year for us as we implement additional strategies to improve health and care, while lowering costs.  

Change is very scary, and some are more afraid than others. If we change the model while others remain in the broken model that has been working for them but not for patients and patients’ employers, those others, too, will be forced to change. 

Because of this, those who don’t want to change are fighting back. St. Luke’s sees the risks to changing the status quo and we are experiencing the resistance that leaders sometimes experience. But St. Luke’s, as a community resource and Idaho’s only locally owned, locally governed health system, feels a tremendous obligation to the people of Idaho and those we serve from surrounding states to be the leader in trying to make health care better and less expensive for all we are privileged to serve. Affordable, high-quality, patient-centered care is what Idahoans deserve.

About The Author

David C. Pate, M.D., J.D., is president and CEO of St. Luke's Health System, based in Boise, Idaho. Dr. Pate joined the System in 2009. He received his medical degree from Baylor College of Medicine in Houston and his law degree from the University of Houston Law Center.