Affordable Care Act (ACA), New Taxes | Donald Saelinger

12 Dec

Will ACA succeed? Will It Result In Renewed Recession? Will there be more lawsuits, Supreme Court decisions, and patient care disruption?

The Affordable Care Act is now the law of the land. Its implementation has begun and will continue for the next few years. The ACA also referred to as “Obamacare” has survived much turmoil, political wrangling, state’s lawsuits, and a Supreme Court decision about constitutionality. The issue of state sponsored Medicaid programs is still far from certain, as many states are reluctant to implement such programs due to cost. Clearly there number of positive elements to the affordable care act including health insurance coverage for the vast majority of Americans, inability of insurance companies to deny coverage for pre-existing conditions, and the ability to maintain children on parents policy until age 25.


From a healthcare provider perspective, there are several major unresolved issues and questions surrounding full implementation of the Affordable Care Act. The most important issue is the financing mechanism and who will pay for it. There continues to be much concern by citizens as well as politicians with regard to the increased taxes required to pay for full implementation of the Affordable Care Act. The tax issue is complicated by the so-called “fiscal Cliff”, a package of automatic spending cuts and tax hikes that are set to start next month unless the President and Congress are able to agree on a process to stop it. The president and congressional Democrats say they want to reduce spending on entitlements including Medicare and Medicaid if the Republicans will agree to increase taxes on the highest earners. If no deal is struck, the automatic spending cuts known as sequestration will kick in. Built into the sequestration process is an automatic 2% payment cut for Medicare providers. Hospitals would bear the largest share of this of these cuts. Aside from the sequestration, physician reimbursement from Medicare is on track for a 27% reduction starting January 1, 2013. The end result would be a striking 29 to 30% reduction reimbursement. Such reductions may result in a catastrophic physician access problem for American seniors.

The tax burden related to the affordable care act as well as the “fiscal cliff” fix will clearly fall to Americans who earn more than $250,000 per year. Beginning in January 2013, a new 3.8% tax will apply to net investment income of certain high income taxpayers, those with modified adjusted gross incomes above $200,000 for single taxpayers and $250,000 for couples filing jointly. This is superimposed on a .9% increase in payroll tax outlined in the Affordable Care Act. Additionally, if Congress were to proceed with the planned fiscal cliff fix, high income Americans will clearly pay the vast majority of the increased taxes.

The obvious concern with this unprecedented tax increase for highly productive Americans is the effect it would have on investment and job creation.

Lastly, United States spends about 17% of its gross national product on healthcare. This is significantly higher than it is in other developed countries. In spite of this massive expenditure, the American healthcare industry is in turmoil. Patients frequently do not get adequate value for their healthcare dollars, and the payment process is out of control. Access to physician care is becoming a major problem and this will be accentuated when 40 million new patients enter the healthcare market as a result of Obamacare.

The obvious question is how can American healthcare providers improve the quality of health care and reduce cost simultaneously. The most likely answer is continued evolution of integrated delivery systems where doctors and hospitals work together to improve quality and reduce cost. Early quality and cost data from newly developed integrated delivery systems are not particularly encouraging however long-standing integrated delivery systems such as the Mayo Clinic, Cleveland clinic and others do show significant improvement in quality at a reduced cost. In the opinion of the author, resolution of American healthcare turmoil rests with the continued evolution of patient focused and physician oriented integrated delivery systems.

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