Romney’s and Ryan’s Confusion on Basic Accounting: Medicare Cost Savings is Not a Raid on Medicare

From a Romney / Ryan TV ad currently being broadcast:   “Obama has cut $716 billion dollars from Medicare,” says the narrator. “The money you paid for your guaranteed health care…is going to a massive new government program that’s not for you.”

Mitt Romney in a stump speech in Ohio on August 14:   “Did you know that he’s taken $716 billion out of the Medicare trust fund?  He’s raided that trust fund.  And you know what he did with it?  He’s used it to pay for Obamacare”

Paul Ryan in an interview on Fox News Channel:  “We’re the ones who are not raiding Medicare to pay for Obamacare”

(all three sources quoted in this ABC News story)

Over the last several days there have been incredible allegations from Mitt Romney, his proposed running mate Paul Ryan, and their campaign, that Obama is raiding the Medicare Trust Fund for $716 billion in order to pay for Obamacare.  The statement has been made with such certainty and certitude, and repeated so often, that one assumes there must be some element of truth behind it.   Not surprisingly, many news services are reporting it as fact, and a good deal of digging is required to find out what Romney and Ryan are in fact referring to.  And since it is so basic, one wants to double-check and triple-check to make sure something has not been missed.

But the basic conclusion is inescapable:  Either Romney does not understand basic accounting (and given his business career, one would assume he would), or he is trying to deliberately mislead the public.  And Ryan appears to be completely confused on the difference between cost savings and cost increases.

First of all, everyone agrees that the $716 billion number comes from the Congressional Budget Office, from a July 24, 2012 report produced at the request of Speaker of the House John Boehner.  The report analyses the impact on the budget over the ten year period 2013 to 2023, if the Affordable Care Act of 2010 (“Obamacare”) were repealed, as his draft bill H.R. 6079 would do.  Since the analysis is looking at the impact on public spending and revenues from the repeal of Obamacare, one needs to be careful on the mathematical sign of the changes projected.  Most analyses look at the impacts on spending and revenues that will follow as a consequence of Obamacare being approved.    This is looking at the reverse.  And while it is important to keep this straight, I don’t think this is the source of Romney’s and Ryan’s error.

The $716 billion figure is an estimate by the CBO of the higher costs that Medicare would incur if Obamacare were reversed.  The primary reason Medicare will enjoy savings as a result of Obamacare is that hospitals and other health facilities will not bear the uncompensated costs they now incur when they treat the uninsured.  Everyone recognizes, even Romney and Ryan, that the number of uninsured will go down under Obamacare.  Like everyone else, the uninsured often require medical care, and currently hospitals and other facilities will not turn anyone away for at least initial treatment, either in accordance with their own ethical standards, or in some States in accordance with the law.  But the costs need to be covered somehow, and hospitals and other facilities currently shift these costs to those who are insured, either by Medicare or by private insurance.  As the current uninsured become insured under the Obamacare system, hospitals will no longer have to shift these costs onto Medicare and other insured patients, and Medicare (as well as private insurance) will save.  The $716 billion figure is the CBO’s estimate of the savings Medicare will receive as a consequence of reducing the number of uninsured.  There will still be uninsured patients, but there will be fewer.

The CBO in fact presents a break-down of these estimates across some major categories.  Mathematically, I will present them here as the savings that would follow if Obamacare is implemented rather than reversed.

CBO estimates of ten year savings, 2013-2022.   In $ billions.
A.  Lower Medicare payments to facilities, currently needed to compensate for care to the uninsured: $415b
   1)  Hospitals                                    $260b
   2)  Skilled Nursing Facilities              $39b
   3)  Hospice Services                         $17b
   4)  Home Health Services                 $66b
   5)  All Other                                        $33b
B.  Lower Medicare payments needed to hospitals serving a disproportionate share of low-income patients  $56b
C.  Lower Medicare subsidies to the Medicare Advantage option $156b
D.  All other  $89b
TOTAL $716b

Medicare and the Medicare Trust Fund (and private insurance as well) will therefore save enormous amounts when the cost shifting that currently occurs because of the large number of uninsured, will be reduced as the uninsured become able to obtain their own medical insurance under the Obamacare system.  There will still of course be costs for the currently uninsured to obtain new health insurance coverage.  Part will be borne by the currently uninsured when they are able to purchase coverage currently beyond their reach (as prices for individual coverage can be extremely high in the current US system, due to adverse selection problems; such prices will come down under Obamacare due to the universal mandate).  But part will be borne by the government, whether through direct subsidies to those of lower income to pay part of the costs of their health insurance, or the direct costs of an expanded Medicaid.  These costs are reflected in the CBO estimates of the overall costs of implementing Obamacare.  For consistency, the CBO then estimated also what Medicare would save (an estimated $716 billion) when there is less cost-shifting by hospitals and other facilities to cover care for the current uninsured.

What Romney either never understood or is mis-representing, is that the savings Medicare will receive as a result of increased coverage of the uninsured under Obamacare, is not a “raid” on the Medicare Trust Fund.  Indeed, it is the exact opposite.  Medicare will enjoy an estimated $716 billion in savings as a result of Obamacare, and hence the funds in the Medicare Trust Fund will go further than they would without such savings.  And the CBO, in estimating the expected ten-year overall cost of the Obamacare reforms, correctly reflected such savings in lower Medicare costs.

What is completely disingenuous is the Paul Ryan comment that he is not “raiding” the Medicare Trust Fund under his plan (which Romney says he supports), while Obama is.  In recent days, it has been pointed out that buried in the Paul Ryan budget proposal (approved by the Republican House), are cuts to Medicare of the same $716 billion.  Ryan has reluctantly acknowledged that they are there.  But when asked today while campaigning in Ohio why his budget plan includes the same $716 billion cut, Ryan responded:

“First of all, those are in the baseline, he put those cuts in,” Ryan said, referring to Obama.  “Second of all, we voted to repeal Obamacare repeatedly, including those cuts. I voted that way before the budget, I voted that way after the budget.  So when you repeal all of Obamacare what you end up doing is that repeals that as well.”

“In our budget we’ve restored a lot of that,” Ryan continued. “It gets a little wonky but it was already in the baseline.  We would never have done it in the first place.  We voted to repeal the whole bill.  I just don’t think the president’s going to be able to get out of the fact that he took $716 billion from Medicare to pay for Obamacare.”

The confusion here is breathtaking.  The $716 billion reduction in costs that Medicare will incur are in the Obama budget precisely because Obamacare would be implemented, and hence the number of uninsured reduced.  The hospitals and others will not then need to shift the costs of treating the uninsured onto Medicare and others of us who are fortunate to have medical insurance.  But Ryan would repeal Obamacare, and hence these savings to Medicare would not materialize.  Medicare would need to spend more if Ryan gets his wish, and if in his budget he would then cap what Medicare could spend to $716 billion less than then needed, Medicare would no longer be able to pay in full for the medical costs of its seniors.  If Medicare spending is not capped (and there is no current legal basis for it to be so capped), the extra $716 billion in Medicare costs would go straight to an increase in the deficit over what the Ryan budget projects.

Paul Ryan delights in being treated as a “policy wonk” who supposedly knows his numbers.  If he does, then he is seriously misrepresenting the truth.  And the best that can be said about Mitt Romney is that this might be an issue which he does not really understand, and hence has accepted as correct the position that Ryan (and other Republican advisors) have repeatedly stated.  The alternative is that he too understands that this is a complete misrepresentation of what the CBO has estimated.