How ObamaCare Double Counts Its Medicare Savings

Charles Blahous, a Medicare Trustee, and James Capretta, a former Bush administration budgeting official, do a good job of explaining how the Medicare double counting in ObamaCare's budget scoring works:

When Congress considers legislation that alters taxes or spending related to Medicare's Hospital Insurance Trust Fund, the changes are recorded not just on the Hospital Insurance Trust Fund's books, but also on Congress's "pay-as-you-go" scorecard.

The "paygo" requirement is supposed to force lawmakers to find "offsets" for new tax cuts or entitlement spending, and thus protect against adding to future federal budget deficits. Putting the Medicare payroll tax hikes and spending constraints on the "pay-as-you-go" ledger was instrumental in getting the health law through Congress, because doing so fostered a widespread misperception that the law would reduce future deficits.

But the same provisions add to the Hospital Insurance Trust Fund's reserves, which expands Medicare's spending authority. Medicare can only pay full benefits so long as its trust fund has sufficient reserves to meet these obligations. If the trust fund has insufficient resources, then spending must be cut automatically to ensure the fund does not go into deficit. The health law's Medicare provisions prevent these spending cuts from taking place for several more years.

In short, the scoring convention is not widely understood and thus obscures the double-counting.

The authors make a comparison to Social Security that's especially useful:

Perhaps the easiest way to understand this is to look at Social Security. If we generate $1 in savings within that program, then that's $1 that Social Security can spend later. If we also claimed this same $1 to finance a new spending program, we would clearly be adding to the total federal deficit. There has long been bipartisan understanding of this aspect of Social Security, which is why Congress's paygo rules prohibit using Social Security savings as an offset to pay for unrelated federal spending.

No such prohibition exists in the budget process against committing Medicare savings simultaneously to Medicare and to pay for a new federal program. It's this budget loophole, unique to Medicare, that gives the health law's spending constraints and payroll tax hikes the appearance of reducing federal deficits.

Yes, as the law's defenders have pointed out, the double counting is in keeping with prior government accounting conventions. But that's not much of an excuse. In this case, the trust fund accounting convention allows the government to take in one dollar and then spend it twice. Which of course eventually means collecting, either through new taxes or additional debt, a second dollar. 

I covered Blahous's paper on ObamaCare's Medicare double-count here.