On trust fund “raids” and “double counting”

by John Sides on August 26, 2012 · 5 comments

in Campaigns and elections,Health Care,Policy

This is a guest post by University of Virginia political scientist Eric Patashnik.  Earlier posts by him are here and here.

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The big Medicare fight between Obama and Romney/ Ryan is over whether to retain or alter the program’s traditional defined-benefit structure.  That’s where political attention properly belongs.  But there is also an interesting side skirmish over whether Obama has “raided” the Medicare Hospital Insurance Trust Fund to pay for the coverage expansions in the Affordable Care Act.

It is a powerful, morally-charged accusation, because it suggests that President Obama “broke faith” with the seniors who paid into the Medicare system during their working lives.  Trust-funding financing clearly does not eliminate political conflicts over taxes and benefits; rather, it shapes what the conflicts are about.

Romney’s accusation goes back to earlier GOP charges of “double counting” – the claim that the Obama Administration fudged the numbers when it stated that the Medicare spending cuts contained in the ACA both lower the federal budget deficit and extend the solvency of the HI Trust Fund to 2024 from 2016.

In fact, as former CBO Director Robert  Reischauer points out, the Obama Administration followed the budget accounting rules that both parties have used for decades.  According to the Center on Budget and Policy Priorities:

the “Balanced Budget Act of 1997 and the Deficit Reduction Act of 2005 — both of which Republican Congresses approved — included Medicare savings that were counted as reducing the deficit and improving Medicare’s financial outlook.  The Senate Republican Policy Committee rightly claimed credit for this result, and no one made charges of double-counting.”

This is not to say that the federal government’s budget rules are perfect. Many experts believe that Washington’s budgeting procedures and accounting conventions lack transparency and consistency, and fail to promote fiscal responsibility. There is no shortage of proposalsfor reform. Some proposals would require the president and OMB to use the CBO budget baseline.

More radical are calls for the federal government to adopt accrual or generational accounting. If federal budget officials used different accounting conventions than they do today, the numbers might change some, but the bottom-line conclusions about the nation’s fiscal situation would remain the same:  our taxes are low by international standards  (as Andrea Campbell points out, we spend too much on health care and the nation is on an unsustainable fiscal path).

Medicare is funded in part from a contributory trust fund because President Johnson, Wilbur Mills and other program architects wanted to give workers “earned rights” and promote fiscal rectitude.  Those were hard goals to merge when Medicare was created back in 1965, and they are even harder to reconcile today.

{ 5 comments }

Larry Bartels August 26, 2012 at 12:19 pm

Eric, isn’t the more basic issue the nature of the “raid”? Republicans imply that Medicare benefits will be slashed by $716 billion; Democrats claim that they’ve negotiated reductions in payments to medical providers and insurers for the same services as before (in exchange for access to the broader pool of customers provided by ACA). I’ve not seen any good analysis of how likely those “negotiated reductions” are to work as advertised, or of how actual services to beneficiaries (or future costs) are likely to be affected if they don’t.

RobC August 26, 2012 at 1:39 pm

Even if the payments to medical providers and insurers can be reduced without adversely affecting the beneficiaries, it’s beyond comprehension how the same money can be said both to reduce the deficit and to be spent to fund a new entitlement (and one which is claimed not itself to increase the deficit). I’ll believe that when I believe we have always been at war with Eastasia.

Eric Patashnik August 26, 2012 at 2:51 pm

Larry Bartels raises an important question. Budget scoring and trust-fund solvency aside, will the ACA harm seniors by reducing the growth of Medicare payments to medical providers and insurers? I have not seen an empirical study that provides a definitive answer to this question.

The Obama Administration of course argues that seniors will not be harmed, because (as CQ’s John Reichard writes) the Medicare cuts “are taken from sectors that either were previously overpaid by the government, such as private health plans and big pharmaceutical manufacturers, or that would recoup the money in the form of larger numbers of insured patients.” However, the Medicare Actuary has warned that the cuts in the growth of Medicare spending are unrealistic and could lead some providers to drop out of the program, reducing access to care for beneficiaries. It is also possible that Congress will reverse the cuts (as it has reversed some Medicare provider cuts in the past), and the cost of the ACA will ultimately turn out to be higher than advertised. See http://budget.house.gov/uploadedfiles/fostertestimony1262011.pdf

William Galston sums up the situation: “It’s technically correct to say that the Affordable Care Act does not cut [Medicare] benefits. The question is whether reductions in payments to health care providers will impair either access to health care services or the quality of those services. While there are some indications that providers are beginning to pull back from the program and that waiting periods for care may be increasing in some jurisdictions, it is too early to know for sure.” See http://www.brookings.edu/blogs/up-front/posts/2012/08/15-medicare-cuts-galston

For more background, see http://factcheck.org/2012/08/a-campaign-full-of-mediscare/

Aaron August 26, 2012 at 11:07 pm

Rob, I’m not sure where you got this idea that cuts to future growth of Medicare were being counted as deficit reduction and the down payment for some other form of healthcare benefits. It’s a ludicrous assertion that’s not being made by anyone. The GOP assertion is that ACA cuts Medicare to fund ACA, which is basically a transfer of funds. The Dems are not claiming this at all. And the GOP is not claiming that ACA is doing any reducing of the deficit.

Maryland Medicare August 27, 2012 at 2:47 am

I trust only Romney medicare plans, those are only trustable…

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