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Healthcare Finance: The Budgeting Implications of the Issue

Introduction

This paper chooses a particular healthcare accounting issue or problem, the disposition of which requires special skills of healthcare leaders. The issue is contained in the article entitled “US city budgets stable – but decisions loom” by Marks, Alexandra (2007). The paper will also discuss the budgeting or accounting implications of the issue and how the present and future healthcare leaders would have to act to respond to challenges and/or solutions for that will be discussed in the paper. The latter part will also present some reasons for choosing this source as part of this paper.

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Analysis and Discussion

The article contains the issue of how to face the increasing health care cost by the City of New York given it’s having at present a stable budget (Marks, 2007). The issue precisely is caused by new accounting rules for factoring retiree costs which would mean higher expected costs in the budgets of New York. Higher costs without increasing revenues would mean higher cash outlays for disbursements for cash (Bernstein, 1993).

Any expected deficiency in cash therefore would have to be financed from sources that would mean a decision to be made by either increasing taxes in upcoming budgets. Raising additional taxes is easier said than done and the affected taxpayers would not be ready to accept the same as they may have just recovered from the effects of the 2007/2008 recession. If taxes could not be raised, the city could just opt to reduce present benefits to accommodate wider benefits for all.

Compared with every other city in the US, New York faces a threatening problem for its upcoming budget due to the benefits that would be given to would-be retiring municipal employees from the baby boomers. The city is believed to have recovered from the effects of the recession that the city government is spending or balancing excess funds such as cutting taxes and spending on projects like building parks and extending a subway line (Marks, 2007).

Only a few cities may be experiencing what New York has, but many of the cities including New York would be required for the first time under the new accounting rule to include those future health care costs for retiring employees in their current fiscal assessments (Marks, 2007). This could cause them to make a big adjustment and make some tough decisions on their current and future budgets and would most probably pose a serious concern to them.

A similar concern on pension and healthcare liabilities across the country could be inferred to have been masked before by the surplus of the cities during the earlier boom years in between recessions because of the need to keep their employees from leaving as triggered by the overheated job market. The overheated market is believed to arise when the economy is booming and many parts of the economy would be looking for the best employees by offering higher wages (Marks, 2007).

The city of New York desired to maintain or keep its good delivery of services to constituents want to keep employees from getting out by matching offers from other companies in the industry. Had the new rules on accounting been made earlier, the situation would have been different as they now face the issue of promised benefits that are now required to be booked. With the recession, surpluses are gone but promised liabilities will now be booked and part of the present and future budgets (Marks, 2007).

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In other words, the accounting rules which are now to be conservative have shown their teeth my making information conservative. To be conservative connotes the meaning of not counting the eggs before they are hatched. Translated in terms of expenses, this would mean providing and recognizing the liabilities that would be paid in advance as a result of employing and keeping people in the organization.

The situation or problems on the need to book health care costs for was validated by experiences of underfunding by billions of dollars as found in the mismanaged pension system of San Diego. Houston and Milwaukee experienced also problems with health care costs (Marks, 2007). Complying now with the new accounting was the only way to see the underfunding and if this is applied to other cities like New York, a case of underfunding is not a remote possibility.

The situation could not have happened without the policy decisions made by political leaders who are presumed to have the knowledge or advice of some health care leaders. Since economic cycles are a normal economic phenomenon and since the effect of baby boomers appears not fully anticipated well, cities will not have to just adjust as to their budgets as required by the new accounting rules to include retiree healthcare benefits cost.

Given also that the increase was found notably higher than general inflation, the decision would most like involve some sacrifice from other sectors of society. One possibility is to reduce benefits enjoyed by present employees which could be difficult to do as these people know the recovery from the recession has now come (Marks, 2007). The other option is to increase taxes which may not be easy to do because of the increase in retirees from baby boomers which would mean fewer working or not-yet retired people.

Not booking as required by new rules could also mean not fulfilling or possibly failing to fulfill obligations to retirees since not recognizing them as liabilities means that they will not be funded.

The good thing about New York compared to other cities was, as stated earlier, is the fact that it is still having some extra funds in spending

for some projects and that its pensions are fully funded. Only their healthcare cost is not fully funded but it is estimated to reach as high as $50 billion, which is not a small amount. While other cities that are not in better shape as New York had problems, it is hoped that New York will be able to meet its budgets at present and in the future with full recognition for healthcare costs. Given however the big amount of $50 billion of health care costs under the new accounting rule, controlling cost through better management, reducing some benefits and eligibilities or even some present services are options to keep the city’s obligations to its retirees, employees, and residents in balance (Marks, 2007).

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The relevance of the document in the field of health care accounting and the study of leadership.

It is an accounting issue because of the need to book these costs in the upcoming budget of the city and the same could entail cash outlays that must be financed by the city of New York. Since the paper mentions the almost similar case of the city of New York with other cities of the US, it can be inferred that other cities other than those mentioned in the article or even the whole US may be facing the same situation or challenge as far as increase health care cost is concerned because of the baby boomers in the whole US. It could therefore be a problem not only for the city but the whole US and which will require a decisive and responsible way of addressing the same.

It is therefore basically a problem of money which the government will have to choose the best options from limited resources (Samuelson, and Nordhaus, 1992; Slavin, 1996).

Accounting should be seen to be also directly related to budgeting and which is also directly related to planning. Planning is a chance to control some of the future variables by trying to be prepared when eventuality comes (Atkinson, et al, 2005).

There appear some areas for improvement in this paper as far as the accounting standards or accounting rules on health care costs are concerned. This is the need to have more reliable information. Although it may appear that New York has waited for a certain better time to recognize the same in the books for them to be funded early, it could be argued that the city was not ready to comply with the new accounting rule until the same was put into effect. It can be counter-argued however that since accounting standards are conservative; better planning could have anticipated this thing and such could have resulted in better booking.

In other words, there appears to be the need to have anticipated the same early in the game so that the planner would not be as surprised as the article tries to show. This could be explained however by the fact that incumbent political leaders would want the city to appear in surplus and the need to be conservative in accounting information would be presumed to be further from the minds of the politicians. This could be however rebutted by the argument that health care leaders should be more than willing to voice their position that the health of the voters or residents of new should be less affected by political gimmicks since unhealthy citizens could only mean unproductive ones that may not help build or maintain a prosperous New York.

Therefore, the article is also an issue on leadership because the healthcare leaders are responsible for making a decision that would ensure an acceptable level of health for the community without really sacrificing other pressing needs of the city. The health care leaders must act necessarily through the political process since the assertions on what should be done must have the support of the political environment.

The political leaders will then have to formulate political issues out of these healthcare issues since this would eventually involve the allocation of resources for which a rationalization would be required to be made because resources are limited. Citizens are not only to live with good health and happy lives, but the city also needs peace and order, road and other needs that would compete with the use of limited resources.

Reason for choosing this particular source

This particular source is chosen because it addresses the requirement of the paper on the need to have accounting and budgeting implications as well as the inherent challenges and/or solutions for future healthcare leaders. Accounting issues could not be taken lightly because they have broader implications in decision-making for society.

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This paper would confirm the basic definition of accounting that it is being done for the decision making. Since accounting information is meant for decision-making, it must have the necessary qualities for the decision to be at least informed or have its basis.

Given the accounting information, health care leaders are made responsible for helping reliable budgeting decisions that would address the need of stakeholders in New York and other cities.

Conclusion

To conclude, the new accounting rules that would compel cost recognition are just helping the city of New York and another decision-maker to see the better and more realistic picture. The new rules require accurate and proper accounting that information if compared with the principles of logical syllogism would be compared to the premises from which conclusions or inferences could be made in the form of decisions. Decisions of course are very important since they are direct manifestations of freedom and responsibility in society. Thus when applied in the paper, the proper and accurate accounting information for more healthcare costs is important because of the big share of the baby boomers

that would come as they come in time in their retirement, and this would necessarily disturb or affect the traditional budget of the City of New and even other states in the US. It would mean therefore the need for finding ways how to finance the extended liabilities which must involve cash outlays or cost from the cities. It could either force the cities to look for alternative revenues to sustain the expected cash outlays, reduce the present level of other benefits enjoyed by the beneficiaries, or simply not sustain the needs for healthcare costs. The situation therefore necessarily displays also the workings of the limited resources in satisfying the unlimited needs and wants of the citizens.

References

Atkinson, Anthony, et al (2005). Management Accounting. New Jersey: Person Custom Publishing.

Bernstein, J. (1993). Financial Statement Analysis, , Sydney: IRWIN.

Marks, Alexandra (2007). US city budgets stable – but decisions loom. The Christian Science Monitor. The Christian Science Monitor. Boston, Mass. pg. 03.

Samuelson, P. and Nordhaus, W. (1992), Economics, London: McGraw-Hill, Inc.

Slavin, S. (1996) Economics. Fourth Edition. London: IRWIN.

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StudyCorgi. 2022. "Healthcare Finance: The Budgeting Implications of the Issue." February 11, 2022. https://studycorgi.com/healthcare-finance-the-budgeting-implications-of-the-issue/.

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StudyCorgi. (2022) 'Healthcare Finance: The Budgeting Implications of the Issue'. 11 February.

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