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.


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