A dramatic shakeup of federal government departments and policies is threatening long-established financial models for organizations nationwide. Healthcare entities and nonprofit organizations of every kind (including those that deliver or fund numerous health-related initiatives) are among the most heavily impacted, and the changes have barely begun.
Several high-impact proposals are currently making their way through Congress, with varying levels of support. Many of these ideas will almost certainly meet with legal and regulatory challenges that could delay their implementation. Some may eventually be disallowed by the courts. Even so, it behooves healthcare leaders to know what’s on the table and begin thinking through the budgetary implications for your organization.
Legislative Changes Portend Big Changes for Healthcare Funding
Some of the proposals that could drastically alter the financial model for healthcare entities target Medicaid. Others focus more broadly on the tax code, but nonetheless hold significant potential to disrupt healthcare funding at the state, federal and local level. Here’s just a small sample of what’s in the hopper.
- Proposed Medicaid Funding Cuts: This program is directly in the crosshairs of the House Budget Committee, which has circulated proposals aiming to reduce federal Medicaid spending by up to $2.3 trillion over the next decade.
- Reassessment of State Provider Taxes: Congress is scrutinizing state-imposed taxes that insurers and healthcare providers pay to help the state secure federal Medicaid matching funds. Legislators are considering eliminating these taxes or reducing the allowable tax rate from 6% to 3%. If these changes go through, state budgets could drop by $612 billion over the next decade.
- Budget Cuts to Fund an Extension of TCJA: Discussions are underway to extend tax cuts initiated under the 2017 Tax Cuts and Jobs Act, which slashed revenue and ballooned federal deficits. Some members of Congress are proposing significant cuts to Medicaid and other healthcare programs, potentially including Medicare, to partially offset the revenue loss created by the TCJA tax cuts.
- Proposed Tax Credits for Caregivers: Congress is also looking at ways to support those who care for a loved one at home, with bipartisan proposals, such as the Credit for Caring Act, that introduce tax credits of up to $5,000. Besides reducing financial pressure on caregivers and families, these proposals could increase demand for healthcare services if they become law.
How Can You Prepare?
Change is inevitable, but until the dust settles, it’s impossible to know how these potential changes will impact your budget reality. In the meantime, developing a flexible mindset is the best way to prepare your organization for an uncertain future:
- To what degree would each of the potential changes discussed above likely impact your funding?
- What is the likelihood of finding other funding sources to support certain programs, activities or staff positions?
- How can you adjust workflows to gain new efficiencies, allowing you to shift more organizational resources to care delivery versus administration?
- Are you able to eliminate open positions while meeting long-term staffing needs?
It’s also a good idea to revisit your budget in terms of individual activities and positions with a view to what’s possible under various scenarios. As you review, ask hard questions like:
- Which programs, positions and projects are mission-critical?
- How do the cost-benefit ratios vary between different programs and activities?
- Where could you squeeze out additional cost savings without hurting patient care?
- Where do cuts make sense if maintaining all current activities becomes unfeasible?
Help Your Organization Be Ready for Whatever Comes Next
Nobody likes uncertainty, but panic won’t help. Use this time to assess what’s working well at your organization, and think through different options for managing changes that could be in the pipeline. The healthcare advisors at Mauldin & Jenkins can help you adopt a strategic financial model for an organization that’s more resilient in the face of change.
