“Does the health-care act worsen the deficit? The answer, I think, is clearly that it does,” Blahous, a senior research fellow at George Mason University’s Mercatus Center, said in an interview. “If one asserts that this law extends the solvency of Medicare, then one is affirming that this law adds to the deficit. Because the expansion of the Medicare trust fund and the creation of the new subsidies together create more spending than existed under prior law.” [...]
Medicare is financed in part through a trust fund that receives revenue from payroll taxes. Before Obama’s health-care act passed, the trust fund was projected to be drained by 2017 (later updated to 2016). Absent the health-care law, Blahous writes, Medicare would have been forced to enact a sharp reduction in benefit payments in the middle of this decade, or “other Medicare savings would have had to be found.”
Enter the health-care law, which provides about $575 billion in Medicare savings — enough to automatically extend the life of the trust fund through 2029, according to estimates at the time, and avoid a sharp cut in benefits. But in cost estimates by the nonpartisan CBO, those savings also offset a dramatic expansion of Medicaid under the law, as well as new subsidies for uninsured people to purchase coverage.
What Blahous calls “double counting” is actually the “unified budget process,” an accounting method that considers the spending and revenues of the entire federal budget over a 10 year period and the way Congress keeps track of its dollars. It’s the same math that the Congressional Budget Office (CBO) relied on to conclude in 2010 that the law “would produce a net reduction in federal deficits of $143 billion over the 2010–2019 period as result of changes in direct spending and revenues.” Earlier this week, the CBO updated its estimate, reporting that the Affordable Care Act is expected to cost $50 billion less than they anticipated and Medicare actuaries reported that as a result of the savings in the law, the life of Medicare’s Hospital Insurance (HI) Fund is extended to 2024, instead of in 2016.
Here is how the accounting process works: revenue or savings from the law enters the general fund of the federal treasury, where it is counted towards deficit reduction. The money is credited to the Medicare trust fund, which receives a treasury security that will be paid out in interest when necessary. Should the trust fund cash in its bond, that money is transferred from the general treasury to the fund. However, since the same revenue cannot be used to reduce the deficit and extend the life of the trust fund, Treasury would have to find that money somewhere else. But, given the principles of unified accounting, that money is said to reduce the deficit and extend the life of the fund.
As Jonathan Blum, the director of the Center for Medicare Management for CMS, explains, “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.”
The federal government has in fact used this kind of system from time immemorial — including in the GOP’s latest budget proposed by Rep. Paul Ryan (R-WI) — and Republicans have long argued that they would use Medicare savings for deficit reduction AND strengthening the program. Consider this 1997 press release from the Senate Republican Policy Committee making this very same case about the Balanced Budget Act:
– Getting to a Zero Deficit: This legislation is necessary despite continued improvement in the federal deficit. Without the federal policy changes contained in the reconciliation bill, the deficit under CBO’s most recent estimates (without the so-called fiscal dividend that balance will yield) would double to $139 billion by 2002. The deficit was $107 billion in FY 1996 and is currently projected to be $67 billion this year. However, without this legislation, it will not get to zero. The positive economic performance to date largely has been due to low inflation and business restructuring at home and the opening of new markets overseas that has resulted in higher-than-anticipated receipts.
– Medicare: The Balanced Budget Act of 1997 (BBA 97) makes the most significant changes to the Medicare program — the federal government’s health care program for all seniors — since its inception in the 1960s. It modernizes the program by granting new health care options for seniors — while maintaining and strengthening the traditional system. Further, it more equitably distributes federal managed care and new Medicare Choice payments between geographic regions. It also extends the life of the program’s funding mechanism, the Medicare trust fund (known as the HI or Part A trust fund).
Conservatives are now asking the federal government to embrace a different standard of trust fund accounting rules, which look at changes over a much longer period of time. But this argument is fundamentally disingenuous and it changes the rules in the middle of the game. Every member of Congress knows that the CBO’s scores are “God” and that members of both parties rely on the budget office’s numbers and models to move legislation.
Were Democrats to draft a health bill that comported to trust fund accounting rules, rather than unified budget accounting rules, they could have produced a poor CBO score and would have been criticized for increasing the deficit. Now, Republicans are demanding that the law meet the standards of new math that they themselves don’t abide by. It’s not surprising to see a partisan economist put forward these new numbers who, like his greatest supporter Mitch McConnell, is more interested in defeating Obama than working with him to solve the nation’s health care problems.