Summary: What are the events that have led to the shutdown of the federal government? How are they related or are they? Could they or should they have been avoided?
The government shutdown is a result of a chain of events which have occurred over the last few years culminating in a standoff over funding issues. Following are some of the events which have occurred leading to where we are today:
- The Affordable Care Act 2010
- Debt Ceiling 2011
- Budget Control Act 2011
- Fiscal Cliff 2012
- American Tax Payer Relief Act of 2012
- No Budget No Pay Act of 2013
- Debt Ceiling 2012
- Sequestration 2013
- Funding Standoff 2013
- Debt Ceiling 2013
The Affordable Care Act of 2010
Let’s start with the Affordable Care Act of 2010 (ACA). This is a model of healthcare designed to provide accessible, affordable healthcare while enforcing accountability to provide better quality of care. This piece of legislation is also referred to as Healthcare Reform or less formally as Obamacare. The ACA has many provisions with effective dates slated from 2010 through 2015 and beyond and affects just about every facet of healthcare from reimbursement to payment programs to eligibility to exchanges to Medicare and Medicaid to Medical Homes and Accountable Care Organizations. This is not meant to be an all-inclusive list but a look at some of the key features. Healthcare Reform to this magnitude cannot come without controversy. Some of the main issues have revolved around mandates which are viewed as taxes by many. The two most controversial are the individual mandate requiring all Americans (with few exceptions) to be covered by health insurance. The other is the employer mandate which requires employers to provide health insurance options for all full-time employees.
The Debt Ceiling 2011
The debt ceiling is the ability of the United States to borrow money and issue bonds. The debt ceiling was established as a result of the Second Liberty Bond Act of 1917. The purpose of the Act is to hold the President fiscally responsible. If the debt ceiling is reached and an interest payment to bondholders is missed, the United States is officially in default, credit ratings are lowered, and the cost of debt rises. Controversy also surrounds the debt ceiling as some argue it is against the Constitution. According to the 14th Amendment to the Constitution, “The validity of the public debt of the United States, authorized by law… shall not be questioned.” The delay in the raising the debt ceiling in 2011 caused the United States to receive the first downgrade in our credit rating from AAA to AA.
Budget Control Act of 2011
The debt ceiling was raised as a result of the passing of the Budget Control Act of 2011. This act was created to cut spending to more than offset the increase to the debt ceiling and created what is known as sequestration, which will be discussed later.
Fiscal Cliff of 2012
The fiscal cliff was the result of the Budget Control Act of 2011, in part. It was basically a point in time December 31, 2012 when heavy tax increases, severe reductions in government spending due to the sequestration, and another battle over the debt ceiling collided. Tax cuts were enacted during the Bush Administration with effective dates of December 31 and new Health Reform issues in the form of spending cuts were slated to begin January 1st. This became known as the Fiscal Cliff.
American Taxpayer Relief Act of 2012/ No Budget No Pay Act of 2013
As a means of circumventing the fiscal cliff, 2 acts were created – the American Taxpayer Relief Act of 2012 and the No Budget No Pay Act of 2013. The American Taxpayer Relief Act made many of the Bush tax cuts permanent, suspended the sequestration for two months, and established caps on deductions and credits for higher income taxpayers. The bill was opposed by the majority of the Republicans in the House of Representatives. The second act to be created was the No Budget No Pay Act of 2013. This act suspended the debt ceiling until from February 2013 to May 2013. In order to offset the cost of raising the debt ceiling, Congress’ pay was also suspended until an agreement could be made on the budget.
Sequestration of 2013
The sequestration is automatic, across-the-board spending cuts to government agencies. The cuts were slated as a 50/50 split between defense and non-defense areas. The sequestration was enacted to provide about $1.2 trillion over the course of 10 years. The national debt is over $16 trillion at this point. Many departments were issued substantial cuts and are still trying to find ways to recoup the losses.
Funding Standoff 2013
Each year the House and Senate are to agree on 12 appropriations bills to fund the federal agencies and set spending priorities. Many of the appropriations for the 2013 centered around Healthcare Reform or Obamacare. Republicans want anti-Obamacare amendments while the Democrats do not. As a result , a standstill has been reached with neither party willing to compromise, hence the government shutdown.
Government Shutdown 2013
As of October 1, 2013, the federal government was shutdown with over 800,000 federal employees being furloughed. Additionally, issues such as passport issuance, federal loans, and access to state parks are all on hold. The military has not been affected as legislation was passed to exempt them from the shutdown. The government will remain shutdown until a resolution can be reached regarding the funding of the appropriations bills and a resolution/compromise is reached regarding Obamacare and its pending provisions. The monetary effects of the shutdown are adding up daily and could cost millions or even billions when all is said and done. Not to mention, those who are not working and have their pay furloughed all because agreements cannot be reached, while Congress is still receiving their full pay.
The debt ceiling is once again to be reached as of October 17, 2013. Funding for appropriation bills is supposed to be a separate issue from the debt ceiling. However, with the timing of both, the waters have been muddied and they are seen as one impending issue. If the debt ceiling is reached and there has been no resolution to the government shutdown, the issues will be exacerbated. A default could trigger a variety of economic problems including a financial crisis and a decline in output that would put the country into a recession. The debt ceiling over the past several years has served as a bargaining chip for resolving funding issues. According to the Government Accountability Office, “the debt limit does not control the limit of the ability of the federal government to run deficits or incur obligations. Rather it is a limit on the ability to pay obligations already incurred.” As stated, these are two separate issues.
Where do we go from here?
Congress is at a standstill. President Obama is unable to propose a compromise. The debt ceiling is looming and will be a critical issue over the next couple of weeks. What are your thoughts on how things are being handled currently and what solutions could be proposed. Should Congress have the power to continually raise the debt ceiling or should we have an action plan to reduce our debt and live within our means? Should the government have the power to shut down affecting hundreds of thousands of Americans in terms of their jobs and their pay? Shouldn’t the President be able to propose a compromise in which both parties can benefit?
If you are in need of a healthcare financial analysis to ensure your organization doesn’t shutdown or reach the point of a fiscal cliff, please contact BHM Healthcare Solutions at 1-888-831-1171 or firstname.lastname@example.org for your complimentary consultation.