• Medicare accounting

    About Obamacare’s $716 billion cuts to Medicare, Mitt Romney said this:

    I think the $716 billion that our seniors have paid for should stay with our seniors’ program. It should be restored to the Medicare trust fund.

    You can read all about this quote in many other places (just Google it). What I am about to do is to pretend this is all Romney has said about Medicare. My reason for doing so is not to pluck these sentences out of context in order to make a point I could not otherwise make. My reason for doing so is because I want to try to understand what these two sentences could mean, as a case study. If it helps, let’s forget Romney said them. Imagine Mr. X said them.

    I am having trouble understanding Mr. X. Here’s why:

    1. Not all of Medicare is funded by seniors. True, seniors pay premiums. True, they paid and pay taxes. But, if you’re not on Medicare and you’re employed, look at your pay check. See the FICA line? That includes Medicare taxes. See the federal taxes line? Some of those fund Medicare. You’re paying for Medicare too.
    2. Only Medicare Part A (hospital insurance) has a trust fund that typically holds funds over time and can become exhausted. Trust funds for other parts of Medicare are replenished as needed from general revenue. If less is spent on the non-A parts of Medicare, the saved funds wouldn’t end up in the trust funds. Those funds would just be replenished less going forward. Part A is different. If money is saved in Part A, those savings show up as a permanent increase in the Part A balance (i.e., it is higher than it otherwise would be, forever). So, only via the Part A trust fund can one earmark funds for Medicare. Not all of the $716 billion in cuts hit Part A. Without some work I’m not going to do, I can’t break it down into how much hits Part A vs the other parts of Medicare. In any case, even if one could “restore” the $716 billion in cuts, that wouldn’t have a $716 billion impact on the (Part A) trust fund.
    3. But, the very concept of restoring those cuts to the (Part A) trust fund makes no sense. If restoring funds to the trust means anything it can only mean not spending them, because that’s how money ends up in the trust fund. Either it is spent by Medicare or in the trust fund it remains. That’s the same thing as saving money in the program, which is what Obamacare does (among other things). There is no other possible way to earmark funds for Medicare (Part A). So, how, exactly, does Mr. X propose to restore (some portion of) $716 billion to the Medicare trust fund that differs from what Obamacare would do?
    4. If Mr. X wants to be sure to dedicate the $716 billion to Medicare, the way to do it is to not save it, but to spend it … on Medicare. He could mean that, but, again, it is not what he said.
    5. Taking him at his word in this quote, it seems Mr. X agrees with Obama that we should save the $716 billion from Medicare (extending the trust fund’s insolvency date to the extent Obamacare does).* The question then becomes to what to apply those funds. (Aside: the trust fund is just an exchange of dollars for an IOU from the Treasury, which then uses the money for whatever is required by the laws passed by Congress and signed by the president.**) What Mr. X could mean is he wants to use those $716 billion for something other than extending coverage to the uninsured. That’s a logically coherent position to take. But it is not what he articulated in the sentences I quoted.

    To protect my brain from further damage, I am tentatively concluding that Mr. X’s statement has no coherent meaning.

    * Never mind that this is not what has become the standard interpretation of Romney’s (err, Mr. X’s) position.

    ** Spare me the reminder that the trust fund is an accounting fiction. I know all about it. Mr. X brought it up so I’m writing in that context in order to better understand Mr. X, if possible.

    UPDATE: There are trust funds for non-Part A Medicare, but they work differently, as now explained.


    • I think the argument that Romney-Ryan have settled on, after a bit of flopping, is that they plan to use the $700 billion of Medicare cuts to pay down the deficit. Since Congressional accounting doesn’t truly separate out its trust funds, and since Medicare IS going to get funded year after year after year, this is equivalent to saying that they will use money to extend the lifespan of the Medicare trust fund.

      Conversely, Obama uses the cuts to pay down the deficit a bit (aka extend the trust fund by 8 years), but also to finance a coverage expansion.

      This argument is one of the few things in Romney-Ryan’s various Obamacare attacks that rings true. Listen, the bottom line is that Republicans don’t really care that 45 million people are uninsured. Many insured Americans don’t care, either, which has always been the political challenge of universal coverage. And if you don’t care about expanding coverage, then I can see how the distinction between using the Medicare cuts solely to extend Medicare versus partly to extend Medicare but also finance a coverage extension is an important distinction.

      Unfortunately for Romney-Ryan, it’s a bit too nuanced to work as a general election catchphrase, and Romney is still going to go down with the Ryan ship. But from the perspective of a hypothetical wonk who doesn’t give a crap about the uninsured, I could see how it makes sense.

    • The CBO and others have always been crystal clear that you can’t double count. The $700+ billion that was cut from Medicare Advantage–which cut dental, vision, co-pays, and other real benefits–was spent on insurance for other low(er) income people. It was not saved nor did it extend the trust fund 8 years, since it is being spent on Obamacare. Faulty math.

      • Don’t misunderstand me, I am well aware of the double counting issue and the fictional nature of the trust funds. Nevertheless, here is (one version) of precisely what CBO has written http://cbo.gov/sites/default/files/cbofiles/ftpdocs/110xx/doc11005/01-22-hi_fund.pdf

        On the basis of the economic forecast and technical assumptions in CBO’s March 2009 baseline, CBO projected that, under current law, the HI trust fund would be exhausted—that is, the balance of the trust fund would decline to zero—during fiscal year 2017. Enacting PPACA, including the manager’s amendment, would reduce net outlays for Part A of Medicare by $245 billion over the 2010–2019 period relative to that baseline, CBO estimates. Enacting that legislation would also increase HI payroll tax receipts by about $113 billion over that period, according to estimates by CBO and the staff of the Joint Committee on Taxation (JCT). Together, those changes in outlays and revenues would diminish budget deficits and add to trust fund balances by $358 billion over that 10-year period. Given those changes in the financial flows of the trust fund, CBO estimates that the HI trust fund would have a positive balance of about $170 billion at the end of fiscal year 2019.

        Next time you post a claim here, include a link to evidence. Them’s the rules.

    • Aaron, you said that Medicare Part A (HI) is the only trust fund. But doesn’t a trust fund exist for Medicare Part B (SMI)? I know, realistically, that Medicare Part B funding is supplemented heavily from general revenue. I guess I’m just a bit confused. Thanks!

    • Medicare Parts B and D are funded 75% by general revenues, and 25% by beneficiary premiums.
      A reserve is not needed, for the program is set up to be fully funded each year.
      Of course, 75% of that funding comes from general revenues, which increases the debt held by the public (if a budget deficit).
      Regarding the trust fund balance in Part A,, page 25of the paper entitled “2012 Annual Report of the Boards of Trustees of the Federal HI and Federal SMI Trust Funds:”

      “Moreover, in the absence of legislation to address the financial imbalance, interest earnings on trust fund assets and redemption of those assets would cover the difference between HI dedicated revenues and expenditures until 2024. Both of these financial resources for the HI trust fund require cash transfers from the general fund of the Treasury, placing a further obligation on the budget.”
      Gee, I thought a surplus was simply liquidated, if pre-funded and kept intact.
      This must be a newfangled type of surplus in which cash transfers from the Treasury’s general fund are needed, the same way we pay all pay-as-you-go expenses, like Medicaid.
      Don Levit

    • Well no one is going to be harmed by “no coherent meaning.” On the other hand, seniors are going to be harmed by $716 billion removed from Medicare by the health reform act — as the Medicare Office of the Actuaries has explained very clearly.

      • I’m not that happy about how it’s to be done either, as I’ve written. Be that as it may, I’d like to elevate the conversation so we are actually using words to mean something, not just to confuse people.

    • Austin:
      Actually, it is just the reverse. The trust fund holds no cash to redeem the bonds.
      The financial dynamics is that the Treasury redeems the interest, and eventually principal, if needed.
      If a budget surplus, this redemption in done with general revenues.
      If a deficit, it is done with increased debt held by the public.
      It is basically a “pay back” from the Treasury to the trust fund for all the borrowing over the years the Treasury did with the excess FICA taxes and “interest.”
      From a cash flow standpoint, we need not wait until exhaustion in 20 years or so to see the cash effects of a shortage,
      The trust is exhausted now, in that every dollar of interest and principal has been borrowed by the Treasury (similar dynamics have occurred in 23 other trust funds).
      Don Levit