We replied today to an article in the Washington Post regarding the Fiscal Cliff Debate and the nascent discussions regarding the mortgage interest deduction. The Washington Post states,
“…But as Congress and the White House negotiate the first major rewrite of tax laws in decades, changing the generations-old mortgage-interest deduction — which costs the government roughly $100 billion a year — has gone from far-off possibility to part of the conversation…”
When we consider what the U.S. Administration may hope to gain by curtailing the mortgage interest tax deduction, we should consider it in light of inefficiencies and fraud in healthcare that cost more. Analytics, ICD-10, and other components of healthcare reform and HIPAA regulations can help solve this problem.
Bloated charges to Medicare cost an estimated $90 billion in 2011. In other words, the government is reimbursing some for services that were never provided to any taxpayer. This isn’t a Red or Blue issue it is an American issue. We could clean that up first and leave the U.S. taxpayer alone. We would all benefit by more than the $100 billion the Fed thinks it can get back near term, and $200 plus billion longer term, by reducing bloat and fraud factor in healthcare. There is a potential disastrous effect that eliminating the mortgage interest tax deduction might have on real-estate values, at a time when we are trying to rehabilitate the real-estate industry.
Healthcare is a $3 trillion economy, and a large portion is government entitlements. It isn’t bad that the government provides healthcare for those who need it, it is bad that abusive charges from healthcare providers to Medicare bloat the system and cost the U.S. government and the taxpayer far more than what might be gained by reducing the mortgage deduction.
RAC auditsand enforcement penalties are being issued to hospitals and other healthcare providers now who inflate their bills or who commit fraud, but there is a huge pot of gold to be had in these inefficiencies that could be cleaned up before we start taking tax deductions away from wage earning homeowners to make up for other deficits.
According to an article posted just minutes after the Fiscal Cliff
news of today in Market Watch, Why mortgage deduction may sail by fiscal cliff:
…the break is of particular importance now given a still-fragile housing market. The National Association of Realtors, the heavyweight trade association, opposes any changes to the law, saying that most homeowners use the deduction at some point, and cutting the break would lead to a decline in home values of 15%.
So, here is the math. There is over $10 trillion of outstanding debt in residential mortgages. A 15% decline in housing values might create a valuation gap of $1.5 trillion. This asset devaluation would be much greater than the increased tax revenue to the U.S. government. Second, approximately one-third of the $3 trillion healthcare economy is based on Medicare and Medicaid. This $1 trillion sector of the healthcare economy could contribute back more than $100 billion per year to the federal government, or $300 billion in three years, with minor adjustments in the way claims get submitted. That is more than the expected revenue from the mortgage deduction revision.
One of the things that will help with the detail and accuracy of Medicare (as well as private pay and not for profit insurance related claims) is ICD-10. ICD-10 offers more specific detail as to the diagnosis and procedure coding system.
For meaningful results in reducing Medicare fraud, we would also need to move away from a “pay and chase” retrospective system where bloated or inaccurate payments are found after they are billed in healthcare claims, to one where prospective reviews of clinical documentation, bills and insurance claims are enabled via high-speed analytics. Post adjudicated claims would be the first place to start. There are solutions today that can assist in ‘cleaning up’ claims to make sure that the reasonable claims, which accurately document medical necessity are formed electronically to sail through the system with the least amount of friction. And, the increased granularity of ICD-10 which is expected to become effective on October 1, 2014 2015 can help. ICD-10’s increased detail provides more data that could be analyzed by these prospective claims analytics systems.
For healthcare providers who are well-intended, there are analytic solutions that can help review their claims to ensure that they are accurate, and provide protection against unwarranted RAC audits.
Senator LeMieux has similar things to say in his Wall Street Journal editorial, “Lots of Talk, Little Action on Medicare Fraud.”