A Second Opinion on Medicare 'Double Counting'

by Dan Diamond, California Healthline Contributing Editor

TOPIC ALERT:

"Numbers don't speak for themselves. Every budget figure has a politics behind it, and politicians on all sides accidentally or intentionally misrepresent what the numbers mean." -- Harold Pollack, chair of the University of Chicago's Center for Health Administration Studies

The Affordable Care Act cuts the deficit. No, it adds to the deficit.

Didn't we do this dance two years ago?

Regardless, the ACA's budget impact -- and its Congressional Budget Office score -- are making headlines again, sparked by a new study from conservative scholar Charles Blahous.

Blahous has a prominent perch: He's one of two White House-appointed trustees for Medicare. And he's made an eye-catching contention: The CBO wonks are wrong, and ObamaCare could add as much as $527 billion to the U.S. deficit across the next decade.

But this latest debate doesn't expose anything new about the health law.

What it does illustrate is the flawed approach to Medicare accounting -- and how easy it is to gin up another fight over health spending.

Choose Your Own Budget

The sad truth is that "honest budgeting" has a weak track record in Washington. Both parties have incentives to obfuscate, especially on entitlement spending.

Take President Obama's inaugural effort to present a transparent budget. He was excoriated for it.

(And having learned a lesson, the president's team resumed traditional budgeting gimmicks for his second year -- and fiddled with the ACA's savings, too.)

That politically charged climate is largely why CBO has emerged as a trusted scorekeeper. In its officially unbiased role, the agency evaluated the bipartisan Balanced Budget Act of 1997 (determining that the law would cut the deficit by $127 billion over four years) and the Republican-led Deficit Reduction Act of 2005 (projecting about $99 billion in savings over a decade).

Still, CBO can't account for future laws or unforeseen acts of Congress. And based on lawmakers' track record, some of Congress' provisions to cut health spending do seem, well, provisional.

For instance, health care providers successfully lobbied Congress to ignore or reverse some of the BBA's harshest Medicare cuts more than a decade ago. More recently, lawmakers have repeatedly delayed Medicare's planned cuts to physician payments: every time the cuts are in danger of taking effect, Congress cobbles together a patch to kick the problem down the road.

And dire warnings about the Medicare trust fund may be Washington's biggest myth. Over the years, the fund has been near "expiration" more a dozen times.

Unsurprisingly, Medicare never goes bankrupt. Lobbying forces spring into gear, Congress enacts changes to adjust the program's spending, and the program lives to be used in a political fight another day.

New Study Alleges CBO's Score on ACA is Misleading

Which brings us to Blahous' study -- and whether it's fact or fiction may depend on your politics.

The trustee's report resurrects a set of crucial, if complex, issues from the reform debate.

In long: Blahous warns that the CBO score is based on optimistic assumptions that (1) the health law will produce its expected savings, and (2) Congress won't overrule the planned cuts to Medicare.

Specifically, Blahous suggests that the savings from the ACA's cuts to Medicare spending, which nominally leaves more money in the bank and extends Medicare's solvency, are actually mythical -- because they're immediately repurposed to expand health coverage.

In short: Defenders of the ACA are double-counting the law's savings, Blahous says.

Two Takes on Double-Counting

Policy analysts are split on Blahous' charge. Are lawmakers actually double-counting ACA savings?

  • No, they're not: According to Paul Van de Water of the liberal-leaning Center on Budget and Policy Priorities, it's not double-counting to conclude that Medicare savings both improve Medicare's long-term fiscal health and help with deficit spending. In Van de Water's accounting, it's "no different than when a baseball player hits a home run: it adds to his team's score and also improves his batting average. Neither situation involves double-counting."
  • Yes, they are: Peter Suderman of the libertarian Reason magazine says that the problem is Medicare trust fund accounting, which essentially allows one dollar to be spent twice. Under that twisty logic, Suderman suggests that he could "record an increase for each new dollar in a Google spreadsheet titled: Freelance Work Trust Fund Account. Then I'll spend all the money on comic books ... I'll [soon] have a lot of comic books, and a huge trust fund account."

No one disputes that CBO is using the same trust fund accounting rules that it applied to the BBA in 1997 and the DRA in 2005 -- in both cases, the agency assumed that Medicare savings would simultaneously cut the deficit and extend the life of the program. That's a point that Republicans celebrated in 1997, according to Igor Volsky of the Center for American Progress.

"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," Volsky writes.

However, Duke policy professor Don Taylor contends that the Blahous study isn't notable for the double-counting canard.

Rather, the study's primary issue is that Blahous has developed a new -- and unrealistic -- baseline that assumes Medicare's long-term financing challenges will be miraculously solved, Taylor concludes.  Judged in that context, of course the ACA would expand the deficit.

ACA as Proxy Fight

Ultimately, this isn't a fight over the ACA, Pollack told California Healthline -- it's a battle over Medicare politics. Essentially, "how are we going to control the cost of Medicare?" he said.

Against that backdrop, trust fund accounting does serve a purpose, warts and all. Even if lawmakers will never let Medicare go bankrupt, every dire warning "forces us to confront the problems" of health care cost growth, Pollack added.

But some warnings fall on deaf ears because of the heavily politicized reform debate. As Avik Roy notes, some of Blahous' liberal critics have charged that his accounting is suspect because he's a former Bush administration official.

So what numbers can we trust?        

It would be helpful if both parties agreed to accept a single CBO methodology. Pollack argues that there needs to be more independent budget analysis too, like a conservative equivalent to the Center on Budget and Policy Priorities.

"Road to Reform" will keep our eyes peeled for a perfectly unbiased budget referee. Until then, here's what else is happening around the nation.

Administration Actions

  • On Monday, HHS asked two insurers -- Assurant Life's Time Insurance Company and United Security -- to "immediately rescind" proposed health insurance premium rate increases that the department deemed "unreasonable" (Reichard, CQ HealthBeat, 4/16).
  • A provision in the federal health reform law requires insurers to provide a public justification of rate increases exceeding 10%. The insurers' rate increase proposals -- which would affect about 60,000 people in five states who have either individual coverage or small group insurance -- range up to 24% (Morgan, Reuters, 4/16).
  • In comments after a speech at the National Action Network's annual meeting last week, HHS Secretary Kathleen Sebelius acknowledged that it "probably" is a good idea for HHS to have a contingency plan for the overhaul if it is struck down by the U.S. Supreme Court, but she noted that the department does not have such a plan and it is not developing one (Feder, Politico, 4/12). During the speech, Sebelius urged civil rights leaders to support the federal health reform law, saying that it is an essential tool for eliminating health care and social disparities that have long been synonymous with racial minority groups (Morgan, Reuters, 4/12).

Challenges to Reform

  • The fate of the federal health reform law's Medicaid expansion hinges in part on new rules that could be released as early as next week. To help accommodate an anticipated increase in demand for primary care by the newly insured, the law calls for Medicaid to pay primary care doctors no less than 100% of Medicare reimbursement rates in 2013 and 2014 for primary care services. However, the provision could prove to be more costly if the upcoming federal regulation broadens the definition of primary care and identifies which providers are included (Pecquet, "Healthwatch," The Hill, 4/14).

Eye on the Courts

  • Some insurance experts say that a potential misunderstanding about the federal health reform law's individual mandate during last month's U.S. Supreme Court oral arguments could affect how the justices rule on the overhaul. During the arguments, some justices and lawyers appeared to believe that the law would not allow residents to buy low-cost insurance plans and still comply with the individual mandate. However, experts note that the law permits individuals to purchase "bronze" plans -- which are similar to catastrophic coverage policies -- to comply with the mandate (Alonso-Zaldivar, AP/U-T San Diego, 4/10).

In the States

  • Last week, New York Gov. Andrew Cuomo (D) issued an executive order establishing a health insurance exchange, after the state's Republican lawmakers blocked legislation that would have created an exchange, which is required by the federal health reform law. For almost a year, Cuomo attempted to establish an exchange but the Senate GOP majority refused to consider the proposal. In March, Republicans blocked Cuomo from including an exchange in his fiscal year 2013 budget (Kaplan, New York Times, 4/12).
  • In a ceremony to mark the sixth anniversary of the enactment of Massachusetts' health reform law last week, Gov. Deval Patrick (D) praised the legislation's successes and drew attention to former governor and Republican presidential candidate Mitt Romney's role in its creation (Goodnough, New York Times, 4/11). Andrea Saul -- Romney's spokesperson -- said, "Patrick is playing politics and misrepresenting Gov. Romney's record," noting that Romney has pledged to repeal the federal health reform law (Millman, Politico, 4/11).

Public Opinion


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