On trust fund “raids” and “double counting”

Aug 26 '12

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


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:

bq. 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.