Why Are We Still Talking About the Fiscal Cliff?

If you have been following the news, it seems that every few months the fiscal cliff re-emerges at the forefront of the news cycle, promoting discussion of deep partisan divide, prognostications of doom for the general population, and the lobbing of insults among our political representatives.  Unfortunately, the result of the bickering has, so far, ended in little more than delay.  The deadline for automatic spending cuts, originally part of the January 1 fiscal cliff, is once again approaching on March 1 and fresh warnings are needed, particularly for Medicare beneficiaries.

A quick recap of the history of the fiscal cliff debate goes back to the December 17, 2010 culmination of the battle over the debt ceiling.  Among the provisions of the deal were $1 trillion in spending cuts, which could be avoided through the efforts of a “Super Committee.”  The committee failed to avoid the cuts.  Over the last two years, a number of temporary laws have been passed to delay the impact of these deep cuts, but the issue remains unresolved.

As people have grown wearier of the coverage, new issues or areas of compromise may be emerging.  Along with the “closing of tax loopholes” and some spending cuts that have long dominated the conversation without many specifics, President Obama has recently said that Medicare cuts are on the table.  Put simply, Medicare is the program that helps virtually all seniors pay for medical expenses and is administered in multiple parts.  Conversely, Medicaid (Medi-Cal in California) helps low-income individuals, including seniors, pay for medical expenses.  Medicaid is exempt from the sequestration cuts, but Medicare is not.

Although President Obama has indicated in the past that raising the Medicare eligibility age should not be an option, he has stated his willingness to apply cuts to “affluent seniors” and achieve other savings in entitlement programs.  Although who President Obama would consider affluent for purposes of Medicare cuts remains unclear, it is possible that Medi-Cal planning may soon need to be considered in part of your estate plan.

Other cuts that may affect seniors, particularly low income seniors, include reductions in federal aid to programs like Meals on Wheels.  The federal government estimates that as many as four million fewer meals may be served, which could be devastating to seniors who survive on the program.  Many seniors receiving food from the program are home-bound and have limited other options for obtaining food.  The Social Security Administration will also be forced to reduce services.

In addition to possible impacts to seniors, significant cuts to defense spending could severely impact the local economy.  Dramatic decreases to Department of Defense spending and border patrol are expected, causing furloughs and layoffs, if the sequestration is not addressed by Friday.  California could see dramatically reduced revenue from income taxes due to the loss of nearly $400 million in individual income.  Individuals receiving VA benefits, like VA Aid & Attendance Non-service Connected Disability Pension, will not be directly impacted by the automatic cuts.

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