The CMS Double Counting Controversy Misses The Point

Yesterday, the Center for Medicare and Medicaid Services (CMS) released a report arguing that under health care reform, “Medicare will save about $8 billion by the end of next year, and $575 billion over the rest of the decade.” The report also found that “[i]mplementing these changes extends the life of the Medicare Trust Fund by 12 years from 2017 to 2029, more than doubling the time before the exhaustion of the Trust Fund.”

Conservatives shot back with an argument perfected by Rep. Paul Ryan (R-WI) during the health care reform debate: the administration double counted savings from the Medicare program by appropriating the same funds to the trust fund and to offset the costs of coverage expansion. During a conference call releasing the study, The American Spectator’s Phil Klein pressed HHS Secretary Kathleen Sebelius on this point and you can read his post on the matter here.

The long and short of it: the administration says that it estimates the effects of the law on the entire federal budget over a 10 year period. Under that scenario, the law increases the cash flow into the Medicare Trust Fund, but since that fund is part of the larger federal budget, some of the funds could be used on other legislative priorities. Klein quotes Jonathan Blum, the director of the Center for Medicare Management for CMS, as saying, “I think it’s been a historical, and longstanding budget convention that when you have less dollars paid to the Medicare program to pay for benefits, there are dollars that accrue to the overall federal treasury, that can be spent for other purposes. And this is an OMB, CBO budget convention.”

Conservatives are arguing that under a different accounting standard — i.e. trust fund account rules — which look at changes over a much longer period of time, the law would not extend the life of the trust fund because it would spend those trust fund dollars on other programs. Klein points to CMS actuary Richard Foster’s previous reports on the health care reform bills as evidence that the CMS itself has predicted much lower savings.

But what’s lost in the debate over which accounting rules to use is the CBO’s and Foster’s habit of underscoring savings from delivery reform. Throughout the health care debate, the CBO and CMS have consistently refused to score savings from payment and delivery reforms, even though they produced savings in the past. For instance, during the 1980s, the government grossly under-estimated the savings from the DRG prospective payment system and then again from the Balanced Budget Act of 1997. Foster’s reports (which Klein cites) omitted “any Federal savings pertaining to the excise tax on high-cost employer-sponsored health insurance coverage, the fees on insurance plans, the excise tax on devices, and other non-Medicare revenue provisions of the PPACA” including system modernization. Conversely, the $575 billion in savings in this report include “quality of care improvements such as reducing the number of hospital readmissions and hospital-acquired conditions; delivery system reforms such as promoting accountable care organizations; pricing reforms such as ending overpayments to Medicare Advantage plans and improving productivity adjustments and market-basket adjustments to provider payments; and a range of provisions to reduce waste, fraud, and abuse.”

One could argue that this report presents a more accurate picture of the possible savings from reform, if it’s properly implemented.