Health Care Budget Projections Spark Political ‘Food Fight’
Policy + Politics

Health Care Budget Projections Spark Political ‘Food Fight’

The Fiscal Times

It was a bruising clash between two political heavyweights—over federal budget accounting rules, of all things.

Former Obama campaign manager David Plouffe and former Bush administration political director Karl Rove, appearing last week on ABC’s “This Week” to discuss  the pending health care legislation,  had the political equivalent of a knife fight over a subject that usually sends even inside-the-Beltway policy wonks rushing  for the door.

A red-faced Rove repeatedly charged that the health care bill that the House later approved that night   only appeared to pay for itself because it double-counted some of the Medicare savings. “This thing is paid for by Bernie Madoff-style accounting in which they double-count money and ignore enormous costs,” Rove said. 

Plouffe fired back that Rove and the Republicans should know something about irresponsible accounting because they wiped out big budget surpluses by enacting a prescription drug program, two wars and big tax cuts without offsetting their cost.

The Congressional Budget Office agreed with the administration that the bill would reduce the deficit by more than $100 billion in the first 10 years. But the CBO also concluded that labeling proposed savings in the Medicare hospital insurance trust fund as both improving the government’s ability to pay future Medicare benefits and financing new spending outside of Medicare “…essentially double-count(ed) a large share of those savings…” 

Since then, the phrase, which CBO used strictly in a technical sense to indicate that the labeling was inappropriate, became a slogan that took on a life of its own. Health care reform opponents increasingly expanded its meaning and insisted that the legislation couldn’t reduce the deficit as much as the CBO said it would while improving Medicare’s financial outlook.

It’s hard not to be amused by the Republicans’ selective use of the CBO’s findings.  Last fall, they took CBO’s reference to “double-counting” as gospel and a reason to oppose the legislation. But they subsequently derided CBO’s finding that the final version of the health care legislation would reduce the deficit by more than $100 billion over the first 10 years and by more than $1 trillion over the second decade. That’s not double-counting; it’s double-discounting.

Minus the vitriol and epithets, here are the basics: 
First, the health care law makes and assumes changes in Medicare that will result in less spending and higher revenues than would have occurred had the legislation not been enacted (yes, I know the argument that the assumed program cuts and revenue raisers will never happen  because Congress will back down and never fully implement them. That’s beside the point for this discussion and a topic for another day.) As long as the newly enacted and assumed spending reductions and revenue increases exceed the additional spending that will occur, the overall budget deficit will be lower than it otherwise would be. That, in fact, is what CBO said would happen.

Second, Medicare is a federal version of a trust fund. It’s just like your checking account, in that the more you deposit and the less you take out, the higher the balance over the long term. Because of that, as enacted, the health care legislation absolutely extends the period in which the Medicare trust fund remains solvent.

Here’s where it gets a bit more complicated. Like all federal trust funds, Medicare is required to buy federal bonds when it has a surplus. Medicare doesn’t retain the cash, but instead lends it to the Treasury.  Medicare will get the funds back when the trust fund runs a deficit and needs to redeem the bonds to make payments. 

If all goes as planned under the health care law, and assuming the CBO is correct, the deficit will be reduced, Medicare will remain solvent nine years longer, and the government will still have to make good on what it borrowed from the trust fund when the time comes.

The key point:  Assuming CBO is correct about the deficit reduction aspects of the law, the federal government’s overall financial position will be improved compared to what it would otherwise be.  That, in turn, should make it easier for the government to borrow funds to redeem the bonds purchased by Medicare when the time comes.  Of course, it would have been even easier to accomplish that if all of the Medicare savings and revenue increases had been dedicated to reducing the deficit instead of additional health care expenditures, but that was not politically practical.

In retrospect, therefore, the Plouffe/Rove food fight was really only about the extent to which these federal budget accounting concepts could be applied. Given how Plouffe and Rove were both cooking the books to some extent, their showdown might have been more appropriate on The Food Network than ABC.