Weekly Standard: Democrats Vulnerable On Medicare

Partner content from The Weekly Standard

Republican vice presidential candidate Paul Ryan speaks at a campaign event at Miami University on August 15 in Oxford, Ohio. i i

hide captionRepublican vice presidential candidate Paul Ryan speaks at a campaign event at Miami University on August 15 in Oxford, Ohio.

Matt Sullivan/Getty Images
Republican vice presidential candidate Paul Ryan speaks at a campaign event at Miami University on August 15 in Oxford, Ohio.

Republican vice presidential candidate Paul Ryan speaks at a campaign event at Miami University on August 15 in Oxford, Ohio.

Matt Sullivan/Getty Images

Jay Cost is a staff writer for The Weekly Standard.

The conventional wisdom on the state of the 2012 presidential race is that, thanks to his endorsement of the House GOP Budget and his selection of Paul Ryan to be his running mate, Mitt Romney has opened himself up to one of the Democrats' favorite attacks — fear-mongering over Medicare, or "Mediscare."

This consensus is wrong; instead, the Democrats are much more vulnerable on this issue in 2012.

Why is that?

First, consider the context of the Medicare program, which is currently putting out more money than it is taking in. Within the next few years — nobody is quite sure how long — the Medicare Hospital Insurance (HI) Trust Fund is going to go broke. And, this is not "going broke" in the same way Uncle Sam does; whenever that happens, he just borrows (or, in the age of Quantitative Easing, prints) more. Not true here. When the HI Trust Fund goes broke, we're going to see cutbacks in payments.

The Ryan Roadmap — as passed by the House of Representatives — solves that problem by transforming traditional Medicare from a guaranteed benefit program into a premium support program. The idea is to leverage the efficiencies of the free market to keep benefits the same while lowering the costs: private insurers would compete for the business of Medicare recipients, thus keeping the program from going bankrupt. Importantly, this change will apply only to people who are now 54 and under.

The Democratic claim is that the GOP is destroying Medicare and endangering our seniors. This is doubly false. Today's senior citizens will continue to enjoy traditional Medicare under the Ryan plan, and as for tomorrow's seniors? Well, they were never bound to enjoy traditional Medicare, anyway.

Meanwhile, Democrats have substantial vulnerabilities of their own on this issue.

Rather than instituting free market reforms, the Democrats are applying governmental infrastructures like the Independent Payment Advisory Board (IPAB). This, they hope, will tame the runaway cost of Medicare, but it also will ruin traditional Medicare for future recipients as well. The program will be fundamentally different in the future than it is today, thanks to the IPAB, which will be unelected and largely free to act without interference from Congress. If the GOP is vulnerable on premium supports, Democrats are at least as vulnerable on the IPAB.

But it gets worse for LBJ's party, which two years ago altered Medicare in ways that would have made the ornery old Texan spit nickels. Obamacare mandated hundreds of billions of dollars be cut from the Medicare program, which creates two, enormous political vulnerabilities for Democrats.

First, some of the cuts are likely to undermine the availability of care. The following is from the chief actuary for Medicare (emphasis mine):

The Affordable Care Act requires permanent annual productivity adjustments to price updates for most providers (such as hospitals, skilled nursing facilities, and home health agencies), using a 10-year moving average of economy-wide private, non-farm productivity gains. While such payment update reductions will create a strong incentive for providers to maximize efficiency, it is doubtful that many will be able to improve their own productivity to the degree achieved by the economy at large...

Thus, providers for whom Medicare constitutes a substantive portion of their business could find it difficult to remain profitable and, absent legislative intervention, might end their participation in the program (possibly jeopardizing access to care for beneficiaries). Simulations by the Office of the Actuary suggest that roughly 15 percent of Part A providers would become unprofitable within the 10-year projection period as a result of the productivity adjustments.

Second, Obamacare draws these efficiencies from Medicare not to extend the program's solvency, but to fund a brand new entitlement. A shallow read of governmental reports obscures this fact because of quirks in the way federal bean counters must account for the HI Trust Fund: the Democrats were allowed to count the Medicare savings twice, as offsets to Obamacare spending and extensions to the life of the HI Trust Fund. In the mixed-up world of Beltway accounting, you can do this; in the real world, you (obviously) cannot.

Again, the chief actuary of Medicare (emphasis mine):

The combination of lower Part A costs and higher tax revenues results in a lower Federal deficit based on budget accounting rules. However, trust fund accounting considers the same lower expenditures and additional revenues as extending the exhaustion date of the HI trust fund. In practice, the improved HI financing cannot be simultaneously used to finance other Federal outlays (such as the coverage expansions) and to extend the trust fund, despite the appearance of this result from the respective accounting conventions.

That's accountant-speak for: You may be able to count the same dollar twice on Uncle Sam's books, but that doesn't mean you can spend it twice.

The issue gets down to the fact that, while the federal government spends the money in the HI Trust fund for non-Medicare purposes all the time, it actually is borrowing that money, to be paid back later with interest. So, think of it this way. Suppose you borrow $1,000 from me to buy a new sound system; it only costs you $700, so you return $300. How much have you borrowed? The answer is obvious: $700. But in the world of federal accounting, Uncle Sam can borrow $100 billion from the HI Trust Fund, spend $70 billion of it, then claim he actually saved the taxpayer $30 billion. Nonsense: he cannot claim to save money that he has already borrowed. (See here for a smart video that explains the problem in plain English.)

The first version of the Ryan Roadmap retained the Obamacare cuts to Medicare, but applied the savings to shore up the HI Trust Fund (not fund a new entitlement). Importantly, Romney has endorsed the restoration of all cuts that Obamacare imposed on Medicare, which means that the "Romney-Ryan" plan results in no alterations in the current program for today's seniors; future generations will get premium support to choose a plan via a competitive bidding process.

So, where does that leave us? The GOP has proposed a premium support program for the next generation of recipients in the hopes of saving Medicare for the future. Politically dangerous, for sure. But the Democrats have blown past mere danger and charged headfirst into the utterly suicidal: They are using a top-down governmental board to cut costs in ways that will likely diminish the availability of care, not to secure the future of the program but to bankroll a brand new entitlement.

So, who is more vulnerable to "Mediscare" this cycle?

Answer: the Democrats.

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