Tags: Debt | Deal | Healthcare | Defense

Debt Deal to Pressure Healthcare, Defense Sectors

By Michelle Smith   |   Monday, 01 Aug 2011 03:35 PM

A debt ceiling deal that is surrounded by optimism was reached over the weekend and is currently on the table. Though this deal is expected to save the United States from defaulting, Chuck Gabriel, managing director at Capital Alpha Partners, told CNBC that the nation is heading toward a prolonged period of austerity that could affect many sectors, most notably defense and healthcare.

Fox News says that “the deal means an immediate cut of $1 trillion in government spending over a 10-year period accompanied by a $900 billion increase in the debt ceiling. That will be followed by the creation of the committee to come up with additional cuts worth at least $1.5 trillion. The debt ceiling will be raised by $1.5 trillion if the committee recommendations are approved at the beginning of the year.”

The special committee bearing the responsibility to come up with the spending cuts will consist of six Democrats and six Republicans nominated by their peers. But, the deal does not leave it to chance that if the committee fails, they will simply be scapegoats and Washington's spending problem will continue unaddressed. On the contrary, Gabriel explained to CNBC that there will be particularly brutal across-the-board cuts, half of those coming out of defense, and healthcare providers will also be right in the middle of this.

Without an agreement on the required spending cuts, Time says $50 billion per year will be cut from the national security spending account for 10 years, which is likely to fall disproportionately on military contractors and suppliers. An additional $50 billion per year would be yanked out of the healthcare sector due to a 2 percent decrease in reimbursements for Medicare providers.

According to Time, “Republicans think the threat of cutting Medicare will force Democrats to bargain, and Democrats hope that the threat of defense cuts will force Republicans to bargain.”

What the government has essentially done, says Time is to take hostages. America's two premier parties have shown an inability to work together cooperatively. “So they are pointing a gun to the knee caps of corporate lobbyists for the defense contracting and medical provider communities and saying, “Help us, or else.”

Gabriel says that “there's going to be great deal of uncertainty up until you get past this second bite of the apple.”

Defense and healthcare lobbyists have a reputation for working hard and spending big to have their voices heard in Washington. And with so much at stake for their sectors, there is little likelihood that they deal with this uncertainty in a passive manner.

This is clearly insinuated by Richard Umbdenstock, President of the American Hospital Association, who was quoted by Time as saying “it's not over when it's over.”

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