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The Medicare Trustees’ Report and the $8.1 Trillion Double Count

10:10 AM, Apr 24, 2012 • By JAMES C. CAPRETTA
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The 2012 Medicare and Social Security trustees’ reports have been released (see here and here). The headline is that the Medicare Hospital Insurance (HI) trust fund will have insufficient reserves to pay full benefits beginning in 2024 (the same year that was projected in last year’s report). Social Security will have insufficient reserves beginning in 2033 (three years earlier than projected last year).


The trustees’ reports always contain some interesting information, and that’s true again this year.

In 2010 and 2011, the Office of the Actuary felt compelled to issue separate “alternative” analyses of projected future Medicare spending because the scheduled cuts in reimbursement rates for providers of services to Medicare patients are untethered to reality. If the Medicare cuts planned for in Obamacare were actually to go into effect, Medicare’s reimbursement rates would plummet below those provided even by Medicaid by the end of the decade. If rates fell that low, hospitals and other providers would have no choice but to stop taking care of Medicare enrollees, thus causing severe access problems for seniors. That’s a completely unrealistic scenario for political reasons — Congress would never let it happen — and the actuaries have repeatedly said so over the past three years.

This year, the actuaries incorporated a more realistic “alternative scenario” for future Medicare spending directly into the trustees’ report. The alternative scenario drops the unrealistic cuts from Obamacare and assumes a permanent “doc fix” to prevent deep cuts in physician reimbursement rates. With these more realistic assumptions, Medicare spending is still headed through the roof. Indeed, in 2085, under the alternative scenario, Medicare spending would reach 10.5 percent of GDP, up from 3.7 percent today.

The other important story with respect to Medicare’s finances isn’t covered at all in the trustees’ report, however. That’s the double counting of Medicare tax hikes and spending cuts in the Obamacare legislation.

Earlier this month, Chuck Blahous, one of two public trustees for the Medicare program, brought renewed attention to this subject when he released a paper documenting the double count and quantifying its impact on the federal budget. According to Blahous, when cost estimates are adjusted to remove the effects of double counted Medicare “savings” provisions, Obamacare increases the deficit by as much as $530 billion over ten years.

Not surprisingly, when the results of Blahous’s analysis were printed in the Washington Post, Obamacare’s apologists became completely unglued. Here was a direct assault on a prized talking point — that Obamacare will accomplish the amazing twofer of expanding coverage and also reducing future federal budget deficits. Arguments to the contrary must therefore be discredited at all costs! So, within days of the release of Blahous’s paper, Paul Krugman, Peter Orszag, Paul van de Water, and others all pounced on and denounced Blahous’s findings as being without any merit whatsoever (to put it more politely than some of them did).

The problem for these defenders of Obamacare is that their case is so plainly at odds with common sense that no one who is presented with the facts will believe them.

And here are the facts.

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