Democrats Are Double-Counting Medicare Savings

by Pejman Yousefzadeh on December 23, 2009


Megan McArdle explains. Note that this is a CBO finding–the same CBO that is currently being celebrated for recent favorable CBO scores–scores that are being brought about thanks to dishonest Congressional strongarming. Key passage from McArdle’s post:

Technically, when you cut Medicare spending, that money shows up as an increase in the Medicare trust fund, rather than some other possible accounting entry. But the effect on the unified budget is the same: the money saved by cutting Medicare is spent on other stuff. Whether Medicare is “calling bonds” or “demanding money to cover its deficit”, we still have to find exactly as much money to pay for Medicare as we did before. Which is a lot of money. One of the reasons the projected deficits for the rest of the decade are so big is that the cost of Medicare is outstripping the revenue raised by its payroll tax, and so we have to shovel in more and more money from the general fund.

So while you can technically claim that you have increased the Medicare trust fund, you then have to recognize that you have introduced an equally sized liability on the general fund, which would mean that this bill increases the deficit by hundreds of billions of dollars, rather than reducing it.

Or as the CBO says:

The key point is that the savings to the HI trust fund under the PPACA would be received by the government only once, so they cannot be set aside to pay for future Medicare spending and, at the same time, pay for current spending on other parts of the legislation or on other programs. Trust fund accounting shows the magnitude of the savings within the trust fund, and those savings indeed improve the solvency of that fund; however, that accounting ignores the burden that would be faced by the rest of the government later in redeeming the bonds held by the trust fund. Unified budget accounting shows that the majority of the HI trust fund savings would be used to pay for other spending under the PPACA and would not enhance the ability of the government to redeem the bonds credited to the trust fund to pay for future Medicare benefits. 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.

It’s a little disappointing, really. At the rate that Democratic politicians were generating ever-more-spectacular budget savings from the same old set of health care proposals, I had expected our looming fiscal problems to be permanently resolved by this time next week.

It may disappoint her further to know that claims commensurate to her status quo ante expectations will continue to be made by the Obama Administration, and by the majority party in Congress.

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