• Not double counting, in one chart

    Commenter “DreadGazebo”, a public finance economist, put some real numbers to my (not) double counting in Fraktopia sketch. His chart is to scale.

    Notes:

    • This is all based on CBO estimates (just like my Fraktopia one), but the real-world US Government CBO (obviously not like my Fraktopia one).
    • I checked the numbers. If you want to as well, here are the sources in clickable form: (1) CBO’s December 2009 analysis of the effect of PPACA on the HI Trust Fund, (2) CBO’s March 2010 baseline of the federal budget, (3) CBO’s March 2009 baseline of the Medicare HI Trust Fund, (4) CBO’s March 20, 2010 score of H.R. 4872.
    • Total spending goes up from pre- to post-PPACA, but the deficit declines due to increased revenue.
    • Also, Medicare Part A net spending goes down, way down.
    • This is not double counting.
    • One can therefore say that the date the Medicare Part A Trust Fund* is exhausted is pushed further into the future and the budget deficit is reduced. If one dislikes that statement it is probably on the basis of either (1) one thinks Trust Fund* accounting is a farce or (2) one dislikes how some of the net revenue is spent (e.g., the $788B on coverage expansion, for example). The first objection is not specific to the PPACA. The second is not specific to Medicare. It’s actually hard to logically tie reduced Medicare spending (Trust Fund* extension) to the coverage expansion except insofar as both are due to the same law. Apart from that, the coverage expansion has nothing to do with Medicare. You can, therefore, affect Medicare spending (the Trust Fund*) without affecting coverage expansion and vice versa.
    • The chart, by necessity, depicts totals for fiscal years 2010-2019. One needs relatively detailed CBO pre- and post-PPACA budget figures that breaks out the effect on the Medicare Part A Trust Fund.* This only exists for 2010-2019.
    • Because it represents 10-year totals, the numbers are massive. Yes, that’s $38-some-odd thousand billion in spending, or $38-some-odd trillion for those of you scoring at home.
    • The vertical axis does not extend down to zero. If it did, we’d see (or not see) clearly that a deficit reduction of $143B is very small. It’s probably in the noise.
    • DreadGazebo chose only to highlight in orange Medicare Part A spending, net income, not all Medicare spending net income, reflecting something I raised in a recent post about the Medicare Trust Funds.* To the extent any of the Trust Funds* are real, it’s the Part A one. When we talk about the exhaustion of the “Medicare Trust Fund*” it’s the Part A fund we speak of. The other funds cannot exhaust under current law.
    • DreadGazebo chose to net out income from Part A because PPACA did two things with respect to Medicare (Part A). It cut hospital spending and it raised revenue for the Part A Trust Fund.* If DreadGazebo had only shown the decline in Medicare spending, it would understate the effect PPACA has the Trust Fund* balance.

    Finally, this is irrefutable evidence that TIE has awesome readers. I’m grateful that DreadGazebo put the time to produce this chart. Thank you!

    * I suggest interpreting “Medicare Part A Trust Fund” as “the obligation by future taxpayers to Medicare Part A in the amount of the cumulative sum of Part A revenue, including interest, less Part A expenditures”. Got a better definition? Lay it on me in the comments. Also, even if you hate the tortured Trust Fund concept, I assure you every president and the vast majority of members of Congress will rhetorically stand by it when it is convenient for them to do so. Finally, if the idea that some view the Trust Fund as farcical is new to you, look here.

    @afrakt

    Share
    Comments closed
     
    • The deficit portion is outrageous.
      As a country, we are in deep, deep trouble.
      Why aren’t we talking about what we are going to do when the bankers stop the loans?

    • I am still a little perplexed by the effort spent on accounting for exactly which pot of money goes where. I mean, the accountants have to do it. But why do we care? We can all agree that there are some very real aspects to the trust fund. But the problem is that whether or not its a farce, it’s certainly confusing, and distracts from clearly thinking about our spending.

      What do we lose by just thinking of everything as one giant pot of money? Obama cut Medicare to save money. That money is then allocated to a coverage expansion, paying down the deficit, and extending Medicare. The last two are equivalent, and you can think of them as any combination of deficit reduction or Medicare extension you want. And the Republican critique is that SOME of that money went to pay for a coverage expansion. I think that’s a good use for money, they don’t. What’s wrong with that logic?

      Also, when you allocate the money as you have done in the chart, how long is the trust fund extended? Is it still the eight years figure everyone quotes?

      It is an excellent chart though, to see where the money goes. Very well done. I’m just not sure if the accounting is worth it for something just trying to think clearly and simply about our deficit and spending.

      • Your logic is fine. That’s what the chart shows. The Trust Fund is extended 8 years. The only value to the Trust Fund view that I see is that it is something like a commitment to Medicare that we make (force) on behalf of future tax payers. It certainly gives the sense that Medicare is (slightly) more protected from cuts than it might otherwise be. However, given the political power of Medicare beneficiaries, I don’t think they have much to worry about.

        Beyond that, the Trust Fund has rhetorical value for politicians, mostly because people don’t understand it so they think their Medicare tax dollars are sitting there in a vault for them to draw on in the future. I’m not interested in that type of rhetorical use any more than I’m interested in calling the Trust Fund a “farce.” Either way, you’re confusing people.

    • I thought this was pretty well settled when even the CBO said the following:

      “To describe the full amount of HI trust fund savings as both improving the government’s ability to pay future Medicare benefits and financing new spending outside of Medicare would essentially double-count a large share of those savings and thus overstate the improvement in the government’s fiscal position.”

    • I think there’s little new in this post. The double-counting still exists; it’s still inaccurate to say, it shrinks the deficit and extends the trust fund. The only way those aren’t contradictory is under your new understanding of the trust fund. If we don’t think of it as a Medicare Savings Account that holds a bunch of treasury notes, but instead as a “promise of future taxes,” then that negates the statement that it extends the trust fund.

      • Well, that’s precisely, functionally what the Trust Fund is. If you are accusing me of being truthful to deflate a double counting charge, then I am guilty!

        • I am admittedly still trying to figure out how this all works. But if you want to re-define the trust fund as a promise of future taxes, How do you interpret the extension of the trust fund? It’s not fewer future taxes. It’s exactly the same amount but over more years.

          • It’s simply the promise of future taxes to cover a longer time horizon. And, I’m not redefining it. I’m telling you what it is.

            Every dollar of Part A surplus is lent to the Treasury, which spends it on US obligations. When Medicare needs the money, it redeems the IOU, which has the effect of increasing taxes or the debt (which are deferred taxes anyway). This process continues until the Trust Fund balance is zero, exhausted (some say “insolvent”). Thus, if you don’t like this game, maybe what you want is to hasten the Trust Fund exhaustion date. Romney has pledged to do just that.

    • Austin:
      If you are saying that the trust fund is a promise of future taxes, you are correct.
      It is a promise that can be funded either by new revenues (if a surplus) or increased debt held by the public, if a deficit.
      It is a promise with no dedicated funding source.
      It is “funded” like any other pay-as-you-go expense, like Medicaid.
      It is interesting that we are talking about promises.
      Did you know that a promise, in government parlance, is different from a liability?
      There are actual 4 levels of obligations the federal government has, ranging from Explicit Liabilities (the strongest) to Implicit Promises or Exposures (the weakest obligation to fulfill).
      Future Social Security and Medicate benefits are the weakest obligation to fulfill.
      See a paper entitled “Federal Debt, Answers to Frequently Asked Questions, An Update, published by the GAO.
      Look in pages 65 and 66.
      http://www.gao.gov/new.items/d04485sp.pdf.
      Also see a paper entitled “Fiscal Exposures Improving the Budgetary Focus on Long-Term Costs and Uncertainties,” published by the GAO.
      See pages 3, 12, 15, and 25.
      http://www.gao.gov/new.items/d03213.pdf.
      Don Levit

    • Austin:
      The same mechanism at trust fund exhaustion is used when the trust fund outgo exceeds the income; either new general revenues will be needed or the debt held by the public increases.
      From a Budget (cash) Perspective, the trust fund is empty.
      From a Trust Fund Perspective, it is loaded.
      I will provide an excerpt and link on the current top story when I get home regarding these 2 perspectives.
      Siuffice it to say, that adherents of the Trust Fund Perspective belive Medicare Part D to be fully funded (which is financed 75% by general revenues, an immediate expense, and 25% by the beneficiaries).
      Don Levit

      • I’m not sure if you’re finding fault with something I wrote. In any case, what you wrote is consistent with my thinking. So, perhaps I didn’t convey my thinking properly. Not sure!