Tag Archives: Republican campaign

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

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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the impact on the budget over the ten year period 2013 to 2023, if the Affordable Care Act of 2010 (“Obamacare”) were repealed, as his draft bill H.R. 6079 would do.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.

Romney On Obama’s Health Care Reforms: A Tax or a Penalty?

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Mitt Romney and his campaign have gone back and forth in recent days on whether the fees that would be paid under the “individual mandate” by those able to get health insurance but don’t, should be labeled a “tax” or a “penalty”.  As Governor of Massachusetts in 2006, when Romney signed into law a similar individual mandate that was central to the Massachusetts health care reforms, Romney insisted on calling the fee a penalty.  On July 2, a senior official in the Romney campaign said that the similar fee in the Obama health care plan also was a penalty.  But this then raised a fire-storm of criticism by many Republicans and others on the right, who had been arguing that with the June 28 Supreme Court decision that the fee was constitutional because it was within the authority of Congress to tax, Obama had signed into law in the health care plan a massive tax increase.  Mitt Romney then reversed course, and in an interview on July 4, said that it was a tax and not a penalty.

But the whole argument is absurd.  Whether one calls it in popular discourse a “tax” or a “penalty” is a matter of semantics.  More importantly, the fee (the neutral term I will use here) will only apply to those who are financially able to purchase health insurance, and choose not to.  This is necessary for private health insurers to be prohibited (as provided in the law) from denying coverage to individuals with pre-existing health conditions.  Without a mandate to purchase health insurance, someone could choose not to buy health insurance until they come down with some serious health condition (such as cancer or heart disease requiring an operation), and then enroll only then, on the day of their operation.  These would be free-riders, purchasing insurance only when they develop some health condition requiring expensive treatment.  It would be like insurance companies allowing people to buy fire insurance on their homes at the point when the homes are already on fire.

The fee (or tax or penalty) that would be charged would only apply to those able to buy health insurance, but then choose not to.  It would not apply, for example, to those whose lowest health care insurance option would cost over 8% of their income.  Nor would it apply to those with income below the income tax filing threshold, and there would be exemptions for religious reasons, for American Indians, for those without coverage for up to three months, and for financial hardship.  The fee that would be charged those who still choose not to purchase health insurance would then be 2.5% of household income (or $695 up to a maximum of three times this for a family, if greater).  Such a fee is low, and well less than the costs imposed on society of free-riders who believe it is better for them not to purchase health insurance until they have a major medical expense coming.

Ideally, the amount to be collected under this fee (or tax or penalty) would be zero, as everyone who can purchase health insurance, does so.  It is far from the “largest tax increase in the history of the world”, as Rush Limbaugh has labeled it (confusing the fee associated with failure to purchase health insurance when you can, with other provisions in the law).  And while there are probably some in the country who would like to be free-riders, I doubt there are many.  Personally, I know of no one who does not want to have health insurance coverage if they can get it.  The problem, rather, is the opposite, where individuals desperately want health insurance coverage, but are either denied it or are only offered expensive coverage that they cannot afford because of some medical condition.

The Obama health care reforms would make it possible for everyone to have access to affordable health care.  It is being done through private health insurance, as conservatives have long insisted.  But for this to work, without the private health insurance companies going bankrupt, the potential free-rider problem had to be resolved.  The fee that would be charged such free-riders is aimed at doing this.

Republican Tax Plans, Part 4: Romney Goes for Even Larger Tax Cuts, Mostly for the Rich

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Average tax rates by household income level, Republican tax proposals, Romney tax plans
Mitt Romney, the now all but certain Republican nominee in this year’s presidential race, presented not one, but two, comprehensive tax plans this campaign season.  Romney’s original plan was released in September, 2011, and the implications for who would pay lower taxes (the rich, and especially the very rich), and in a few cases higher taxes (poor people with income up to about $30,000, in comparison to what they would pay if the Bush tax cuts were extended), was discussed in a blog posting on January 7.  It was noted there that while the rich would see very large cuts in their taxes (leading to an increased federal deficit of $600 billion per year by 2015), Romney’s tax proposals were in fact the least extreme of those of his competitors in the Republican primaries (see the analysis at the postings on December 26, 2011, and on January 25, 2012, in addition to the January 7 post).

Faced with these competing proposals for even deeper cuts in taxes, Romney felt compelled to announce a revised tax plan on February 22, which was even more right-wing than the one he had proposed the preceding September.  This was consistent with Romney’s history of changing positions based on what is politically opportune at the moment.  For completeness, it is of interest to add this second Romney plan to the analysis of the other tax proposals, including his own earlier one, to see how they compare.

The average tax rates under Romney #2 that would be paid by households at various income categories has therefore been added to the standard graph above.  As with the earlier blogs, this presents graphically the careful calculations done by the Tax Policy Center, using their tax microsimulation model (based on actual tax return data) to determine the taxes that would then be due for households of various income categories as a result of what was being proposed.  While the diagram has now become fairly cluttered, hopefully it is still clear enough to follow.  I wanted to present the two Romney plans in the context of both each other and of the other Republican plans.

Compared to the other Republican plans, Romney’s new proposal would still generally leave taxes higher than the others would for most households (Cain is an exception, with his hugely regressive tax proposals, and Perry would have left taxes higher than Romney for those making up to $200,000 but would have cut them by even more for the very rich).  But compared to his earlier proposal, Romney would now cut taxes by even more, especially on the rich and very rich.  Compared to current law (under which the Bush tax cuts are scheduled to expire in 2013), Romney would now provide those making more than a $1 million per year in income an average reduction in their taxes of $390,000 each year, vs. a reduction of “only” about $290,000 in his earlier proposals.

The Romney #2 proposals lead to greater benefits for the very rich not simply because with their higher income they pay more in taxes, but also because he now focuses his proposed tax reductions even more heavily on the rich.  Whereas in Romney #1, those making more than $1 million each year would see their taxes reduced by 26%, under Romney #2 he would reduce the taxes of his wealthy colleagues making over $1 million by 35%.  In contrast, poor households with total household income in the range of $40 to $50,000 would see a tax reduction of 13% under Romney #1 and only 19% under Romney #2.  There is no rationale for why the super rich should see not simply a larger absolute reduction in the taxes they would need to pay, but also a greater proportional reduction in their taxes.

And if one is worried, as the Republican candidates say they are, about the fiscal deficit, then one must not ignore that these major tax cuts will lead to a huge increase in the deficit.  The Tax Policy Center estimates that if implemented, the Romney # 2 plan would reduce fiscal revenues by $900 billion in 2015.  This is 50% more than the loss of an estimated $600 billion under Romney #1.  And of the $900 billion lower revenues, well over half ($505 billion) would be a transfer to those making more than $200,000 per year, and over a quarter ($236 billion) would be a transfer to households making over $1 million per year.

Romney insists he will not cut defense expenditures.  Indeed, he says he will increase defense spending over what Obama would.  But total non-defense discretionary government expenditures in 2015 are only projected to be $572 billion in 2015 according to the baseline projections of the neutral Congressional Budget Office (January 31, 2012, report).  Even if all such government expenditures were cut to zero, the deficit would still rise under Romney #2 by $330 billion.  The only alternative would be to cut Social Security, Medicare, Medicaid, and other such programs, which primarily benefit the poor and middle class.  If so, Romney is proposing to cut such programs in order to benefit primarily the rich and super-rich.

To be fair, Romney does say he would also propose to close some tax “loopholes”, but he refuses to say which he would propose to close or reduce, and by how much.  He has said openly it would not be politically expedient to be clear on this before the election.  But he has said that he would keep certain of the more common tax deductions, such as the exclusion for home mortgages for primary homes, and would actually increase certain of these tax expenditures, by cutting further the already low taxes on capital gains and dividends, and by extending further certain corporate tax breaks (such as on overseas income).  If one does this, it is impossible to raise anything close to $900 billion a year by cutting or reducing other tax expenditures.

Romney has presented himself as the serious, businessman, candidate.  Yet he chose to revise his initial tax plan and propose an even more radical plan focused on tax cuts for the rich as part of his (ultimately successful) campaign to secure the Republican nomination for the presidency.  While consistent with Romney’s history of adopting positions based on what is politically expedient at the moment, a plan that would increase deficits by $900 billion a year by 2015 cannot be seen as serious.