The Bogus Obamacare-Deficit Study
By Jonathan Chait
April 10, 2012
http://nymag.com/daily/intel/2012/04/bogus-obamacare-deficit-study.html
the Affordable Health Care for
ceremony with fellow Democrats in the East Room of the
White House March 23, 2010 in
historic bill was passed by the House of Representatives
Sunday after a 14- month-long political battle that left
the legislation without a single Republican vote. (Photo
by Win McNamee/Getty Images) Little did Obama know there
is no Medicare crisis.
The Washington Post has an apparent blockbuster story
today. It reports that a new study finds that Obamacare
will increase the budget deficit, not decrease it, as
the Congressional Budget Office has found:
President Obama's landmark health-care initiative,
long touted as a means to control costs, will
actually add more than $340 billion to the nation's
budget woes over the next decade, according to a new
study by a Republican member of the board that
oversees Medicare financing.
That sounds pretty legit, right?
Actually, no. It's not even remotely legit.
The first thing to understand here is that this is not a
study by a government agency. It's a paper by Charles
Blahous. Who is Charles Blahous? He's a Republican
policy guy. By tradition, the president appoints a
member of each party to serve as a trustee of Medicare
and Social Security. Blahous, who served under George W.
Bush and was active in his attempt to introduce private
accounts into Social Security, is the Republican
trustee. But the other trustee, Robert Reischauer, has
zero to do with his paper. It was published by the
produces some quality work as well as a fair amount of
schlock that does not meet the standards of your typical
university economics paper. This paper is an example of
the latter.
The Affordable Care Act spends a bunch of money to cover
people who are too poor or sick to afford their own
health care. To pay for that, it raises some taxes and
cuts a bunch of spending from Medicare. The new revenue
and the spending cuts outweigh the cost of the new
spending, which is why the Congressional Budget Office
projected it to reduce the deficit. Projections always
have a margin for error attached, but the CBO's two year
update actually bumped up the savings projections a bit.
You may wonder what methods Blahous used to obtain a
more accurate measure of the bill's cost. The answer is
that he relies on a simple conceptual trick. Medicare
Part A has a trust fund. By law, the trust fund can't
spend more than it takes in. So Blahous assumes that,
when the trust fund reaches its expiration, it would
automatically cut benefits.
The assumption is important because it forms the
baseline against which he measures Obama's health- care
law. He's assuming that Medicare's deficits will
automatically go away. Therefore, the roughly $500
billion in Medicare savings that Obama used to help
cover the uninsured is money that Blahous assumes the
government wouldn't have spent anyway. Without the
health-care law, in other words, we would have had
Medicare cuts but no new spending on the uninsured. Now
we have the Medicare cuts and new spending on the
uninsured. Therefore, the new spending in the law counts
toward increasing the deficit, but the spending cuts
don't count toward reducing it.
That is a completely bizarre assumption. It's not an
assumption that any scoring agency ever applies in other
situations. We assume that, in the absence of action,
Congress will keep paying Medicare benefits. That's why
we have all these projections of future deficits. If
Blahous's assumptions are right, then we don't really
have an entitlement problem at all. Medicare can't
exceed its trust fund, so problem solved! You know how
Paul Ryan has been stalking the halls of Congress with
disaster-movie music in the backdrop, warning that we're
about to become
Blahous's methodology would show that Ryan's budget
looks way worse, too.)
Anyway, that's the trick. Assume the Medicare savings
don't count because Medicare would have reduced its
payments anyway, and boom - Obamacare now increases the deficit.
There actually is a bit more in the paper, but it's even
less persuasive. Blahous suggests that Congress might
roll back some of the cost savings in the law. And yes,
of course that's a risk - Republicans are trying to
repeal the entire law. If Congress repeals some of the
cost savings, then they won't save money.
That's not a way of saying Obamacare will drive up the
deficit, it's a way of saying that future legislation
will drive up the deficit. In 1993, Bill Clinton hiked
taxes on the rich. You could have pointed out at the
time that his plan raised less revenue than forecast
because there was a chance that eventually people who
hate taxes on the rich would take control of the
government and roll back his tax hike. That is, in fact,
what eventually happened. But it would be exceedingly
odd to frame such an observation as "
won't raise as much revenue as we think."
Indeed, the whole argument is so bizarrely weak you have
to wonder, "What is this doing on the front page of the
author of the Post story, Lori Montgomery, is the author
of a recent debt- negotiation narrative that seems to
have been spoon-fed to her by John Boehner.
inserts a few cautionary notes into the story, but
basically frames it the way Blahous would like.
Blahous is the Republican trustee for Medicare, so that
title offers the hook for a paper he writes that, by
adopting some mighty odd hypothetical scenarios, says
that Obamacare will boost the deficit. Blahous's
government position gives the claim enough juice that it
can be pitched as a "study" by a government official, as
opposed to just another Republican-authored polemic,
which would never receive such prominent or relatively
credulous coverage. The next step is for conservatives
to adopt Blahous's figure as the "true" figure - but of
course never to apply his strange assumptions to the GOP
budget or to any other proposal - and browbeat the media
into citing that alongside the CBO figure, for "balance."
*****
Koch-Funded GOP Economist Uses New Math To Find That Health Reform Increases The Deficit
By Igor Volsky
Think Progress
April 10, 2012
http://thinkprogress.org/health/2012/04/10/461265/gop-economist-deficit/
George W. Bush's Social Security privatization guru
Charles Blahous - who now works for the Koch-funded
the Affordable Care Act adds $340 billion to the
deficit. The new math relies on the old "double
counting" meme - an argument advanced by Republicans in
Congress in the final days of the health care reform
debate alleging that the Congressional Budget Office
(CBO) appropriated the same revenue for extending the
solvency of the Medicare trust fund as it did for paying
out benefits. The Washington Post's Lori Montgomery explains:
"Does the health-care act worsen the deficit? The
answer, I think, is clearly that it does," Blahous, a
senior research fellow at
that this law extends the solvency of Medicare, then one
is affirming that this law adds to the deficit. Because
the expansion of the Medicare trust fund and the
creation of the new subsidies together create more
spending than existed under prior law." [...]
Medicare is financed in part through a trust fund that
receives revenue from payroll taxes. Before Obama's
health-care act passed, the trust fund was projected to
be drained by 2017 (later updated to 2016). Absent the
health-care law, Blahous writes, Medicare would have
been forced to enact a sharp reduction in benefit
payments in the middle of this decade, or "other
Medicare savings would have had to be found."
Enter the health-care law, which provides about $575
billion in Medicare savings - enough to automatically
extend the life of the trust fund through 2029,
according to estimates at the time, and avoid a sharp
cut in benefits. But in cost estimates by the
nonpartisan CBO, those savings also offset a dramatic
expansion of Medicaid under the law, as well as new
subsidies for uninsured people to purchase coverage.
What Blahous calls "double counting" is actually the
"unified budget process," an accounting method that
considers the spending and revenues of the entire
federal budget over a 10 year period and the way
Congress keeps track of its dollars. It's the same math
that the Congressional Budget Office (CBO) relied on to
conclude in 2010 that the law "would produce a net
reduction in federal deficits of $143 billion over the
2010-2019 period as result of changes in direct spending
and revenues." Earlier this week, the CBO updated its
estimate, reporting that the Affordable Care Act is
expected to cost $50 billion less than they anticipated
and Medicare actuaries reported that as a result of the
savings in the law, the life of Medicare's Hospital
Insurance (HI) Fund is extended to 2024, instead of in 2016.
Here is how the accounting process works: revenue or
savings from the law enters the general fund of the
federal treasury, where it is counted towards deficit
reduction. The money is credited to the Medicare trust
fund, which receives a treasury security that will be
paid out in interest when necessary. Should the trust
fund cash in its bond, that money is transferred from
the general treasury to the fund. However, since the
same revenue cannot be used to reduce the deficit and
extend the life of the trust fund, Treasury would have
to find that money somewhere else. But, given the
principles of unified accounting, that money is said to
reduce the deficit and extend the life of the fund.
As Jonathan Blum, the director of the Center for
Medicare Management for CMS, explains, "I think it's
been a historical, and longstanding budget convention
that when you have less dollars paid to the Medicare
program to pay for benefits, there are dollars that
accrue to the overall federal treasury, that can be
spent for other purposes. And this is an OMB, CBO budget
convention."
The federal government has in fact used this kind of
system from time immemorial - including in the GOP's
latest budget proposed by Rep. Paul Ryan (R-WI) - and
Republicans have long argued that they would use
Medicare savings for deficit reduction AND strengthening
the program. Consider this 1997 press release from the
Senate Republican Policy Committee making this very same
case about the Balanced Budget Act:
- Getting to a Zero Deficit: This legislation is
necessary despite continued improvement in the federal
deficit. Without the federal policy changes contained in
the reconciliation bill, the deficit under CBO's most
recent estimates (without the so-called fiscal dividend
that balance will yield) would double to $139 billion by
2002. The deficit was $107 billion in FY 1996 and is
currently projected to be $67 billion this year.
However, without this legislation, it will not get to
zero. The positive economic performance to date largely
has been due to low inflation and business restructuring
at home and the opening of new markets overseas that has
resulted in higher-than-anticipated receipts.
- Medicare: The Balanced Budget Act of 1997 (BBA 97)
makes the most significant changes to the Medicare
program - the federal government's health care program
for all seniors - since its inception in the 1960s. It
modernizes the program by granting new health care
options for seniors - while maintaining and
strengthening the traditional system. Further, it more
equitably distributes federal managed care and new
Medicare Choice payments between geographic regions. It
also extends the life of the program's funding
mechanism, the Medicare trust fund (known as the HI or
Part A trust fund).
Conservatives are now asking the federal government to
embrace a different standard of trust fund accounting
rules, which look at changes over a much longer period
of time. But this argument is fundamentally disingenuous
and it changes the rules in the middle of the game.
Every member of Congress knows that the CBO's scores are
"God" and that members of both parties rely on the
budget office's numbers and models to move legislation.
Were Democrats to draft a health bill that comported to
trust fund accounting rules, rather than unified budget
accounting rules, they could have produced a poor CBO
score and would have been criticized for increasing the
deficit. Now, Republicans are demanding that the law
meet the standards of new math that they themselves
don't abide by. It's not surprising to see a partisan
economist put forward these new numbers who, like his
greatest supporter Mitch McConnell, is more interested
in defeating Obama than working with him to solve the
nation's health care problems.
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