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Home Publications Blogs CEPR Blog Shoring Up Medicare and Reducing the Budget Deficit Is Not Double-Counting

Shoring Up Medicare and Reducing the Budget Deficit Is Not Double-Counting

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Written by CEPR   
Thursday, 12 April 2012 14:15

A recent study by Charles Blahous, a public trustee for Medicare and Social Security, concluded the Affordable Care Act would contribute $340 billion to the deficit from 2012-2021, contrary to CBO's estimate it will reduce the deficit by $132 billion from 2012-2019. One of Blahous' main arguments in the study is the potential double-counting of increased Medicare payroll taxes toward making the Medicare Hospital Insurance (HI) program more solvent and reducing the deficit in the general fund. But as Dean Baker pointed out in a 2009 post from the Beat the Press archives, there is no double-counting.

The NYT had a thoroughly confusing article that seemed to imply that proponents of the health care bill were double-counting when they claimed that targeted savings in the Medicare program could both shore up the program and also be used to finance extending care to more people. In fact, as the article at one point correctly notes, there is no double counting.

The reality is that the government faces multiple budget constraints. Savings in the Medicare program allow it to meet two of them.

The law requires that spending in the Medicare Hospital Insurance (HI) program is financed exclusively raised through the HI tax (or interest on the bonds purchased with this money). If the HI tax produces insufficient revenue, then under current law, the program would cease to operate. In other words, Congress would either have to appropriate new money or change the structure of the program.

The targeted savings would reduce spending in the program. According to Medicare's chief actuary, these savings would give HI enough money to pay its bills through 2026 rather than the 2016 date when the program is now scheduled to face a shortfall.

Since Medicare is included in the overall budget, savings in the Medicare program also reduce the budget deficit. If there is a concern that we can only finance health care insofar as we are able to keep the budget deficit within certain limits, then the savings in Medicare will relax this constraint also.

There is no double-counting in this story. The government's budget is structured so this multiple constraints must be met. Savings in the Medicare program will allow for this.

Tags: budget | deficit | medicare

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