Mitchell Langbert

How the New Healthcare Law Affects Your Accounting Firm

May 20, 2010
by Mitchell Langbert, PhD

The debate concerning health reform and national health insurance began after World War I. There have been half a dozen presidential attempts to reform or nationalize healthcare since the days of Woodrow Wilson and Barack H. Obama has succeeded where Franklin D. Roosevelt feared to tread. But the new law reflects the health field’s political complexities and has ramifications that are difficult to predict. Rest assured that your firm and you personally will be affected.

One way to consider what the effects of the two sister laws, the Patient Protection and Affordable Care Act and the Healthcare and Education Reconciliation Act (“the healthcare act”), will be is to recall a great book on the art of economics, Henry Hazlitt’s 1946 Economics in One Lesson. Hazlitt’s one lesson is spelled out in 25 chapters, but he states it in one sentence in the first chapter: “The art of economics consists in looking not merely at the immediate, but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups.”

Key Provisions

The law’s most important social welfare improvement is to extend care to 35 million uncovered Americans. This fall, people who lack coverage now can purchase insurance through a high-risk pool. Premiums will be limited to approximately $500 per month for single insureds and $1,000 per month for families. State exchanges will be set up by 2014 to facilitate small firms’ purchase of health insurance and purchases by people earning up to four times the poverty line. Starting in 2014, most Americans would be required to purchase health insurance, unless there is a hardship. Those whose income is more than four times the poverty line must purchase insurance or pay a $695 tax. Tax credits will subsidize middle-class taxpayers and small businesses. Medicaid will be extended.

Insurance companies will not be allowed to rescind coverage of people who become ill. Several insurance companies have done so. Pre-existing conditions can no longer be used to exclude children from coverage and pre-existing conditions cannot exclude adults by 2014. The law eliminates caps on coverage, both annual and lifetime. Children will be allowed to remain on their parents’ policies until age 26.

The law adds some new burdens on highly paid employees to help pay for the plan. It limits pretax flexible spending accounts (FSAs) to $2,500. It extends the Medicare Payroll tax to unearned income for families that earn more than $250,000 and for individuals who earn more than $200,000. Also, beginning in 2018, insurance companies must pay a 40-percent tax on health insurance plans valued at a $27,500 threshold for families and $10,200 for individuals (not including vision and dental benefits). A “healthcare cost adjustment percentage” multiplies the threshold and is adjusted for age and gender. As well, there will be $500 billion in Medicare cuts. The minimum for itemized deductions for medical expenses increases to 10 percent in 2012. The hospitalization tax in FICA will increase from 1.45 percent to 2.35 percent for a married couple earning over $250,000. Fees will be charged to health plans.

Section 3403 of the Patient Protection and Affordable Care Act establishes an Independent Medicare Payment Advisory Board. The Board’s purpose is to reduce Medicare costs by making recommendations for management improvements such as reducing payments for pharmaceuticals, reducing administrative expenses and reducing high bids for services. The law states that the Board’s proposals “shall not include any recommendation to ration healthcare.” But any serious claim that such a Board will effectuate cost reductions hinges on one or another form rationing. A government board will not function competently as a quality circle.

Unforeseen Implications

The law’s proponents claim that the best-run providers such as the Mayo clinic will provide models for change for smaller, more expensive and worse-managed providers. But that is akin to claiming that a government board can tell General Motors to adopt the quality practices of Toyota and then count on GM to run with the ball. High quality certainly is associated with low cost in many industries. The reason is what Edward I. Deming calls the “profound knowledge” of the high quality producer. But a government board lacks such knowledge and government edict cannot transfer it. To insist that Arkville, NY-based Margaretville Hospital adopt the quality of practice in the Mayo Clinic or the UCLA Medical Center sets hope before reason.

There is widespread agreement that a large number of additional physicians will be necessary to provide care in response to the extension of coverage. Anna Fifield of the Financial Times writes that physicians’ organizations predict that 50,000 additional physicians will be needed.

On April 22, National Public Radio reported that the Health and Human Services Department’s Office of the Medicare Actuary found that the law will increase spending by one percent over the next decade. The report also predicted that as much as 15 percent of providers could be thrown into the red because of the Medicare cuts. But these estimates cannot be considered reliable. No one, for example, predicted that the baby bust of the 1960s and 1970s would lead to shortfalls and reductions in Social Security benefits. But they did.

One of the subjects that Hazlitt writes about in his book is how the unforeseen effects of government-induced demand include shortages. Publicly administered health plans from Sweden to Canada are characterized by long waits for care and limitations on care. Given the predictions of physician shortages, we may count on less flexibility in the system.

Last month, Dr. Marc Siegel wrote in USA Today that Medicare is already insufficient to cover his and other physicians’ costs and that he has been seeing a significant number of his patients pro bono. Siegel quotes the Association of American Medical Colleges as predicting a shortage of 160,000 doctors by 2025. He notes that New York has eliminated pre-existing conditions exclusions since 1992 and premium costs have skyrocketed, the reverse of what the healthcare law’s proponents claimed it would do. Hence, there may be unforeseeable cost effects. Siegel writes that he is planning to refuse to see Medicare recipients.


Separately, I traced the trajectory of federal government spending since 1948. There was a statistically significant upsurge in 2009. In effect, all federal spending cuts from 1980 to 2008 (which had already been eroded by the Bush administration) were completely wiped out in a single year, 2009. The healthcare act will add to federal spending, pushing the current spending outlier further off the charts. Excessive demand will increase waiting times and lead to rationing through one route or another. Americans may find that they can obtain superior quality care in foreign countries. Medical tourism is already on the upsurge and I predict it will increase dramatically over the coming 35 years. Who would have thought that a trip to an Indian hospital would be a key effect of health reform?

Rate this article 5 (excellent) to 1 (poor). Send your responses here.

Mitchell Langbert, PhD, is an Associate Professor at Brooklyn College. Widely published on the subject of human resource management, Langbert has consulted and served as an expert witness.