Tuesday, March 22, 2011

More on Medicare’s (Un-)Sustainability

Further to the CBO Medicare baseline data released last week indicating the Medicare Part A trust fund will become insolvent in 2020, it’s worth comparing the CBO projections of Medicare revenue released in August 2010 with its revised March 2011 baseline.  When it comes to estimated payroll tax revenue, the differences between the two are glaringly apparent.  For instance, in 2014 CBO projects that Medicare will take in over $15 billion less in revenue than it did just last August ($272.5 billion in August 2010 vs. only $257.4 billion in this month’s new baseline).  This disparity in revenue continues throughout the 10-year budget window, and is the primary reason why CBO projects the trust fund will be exhausted by 2020, nine years earlier than the actuary’s estimate last year.

Of course, many would argue that the TRUE test of Medicare’s solvency is its cash flow – i.e., whether or not the Medicare Part A program is serving as a drag on general revenues, and therefore exacerbating our trillion-dollar deficits. (It’s why Democrat claims that “Social Security doesn’t contribute to the deficit” were debunked by factcheck.org.)  Medicare Part A had been projected to contribute to federal deficits “as far as the eye can see” in August 2010; the revised baseline released last week only worsened a an already bad forecast.  But it’s worth highlighting the projected drop-off in payroll tax revenue, for one reason:  CBO’s estimates essentially admit that long-range economic growth, and therefore revenue growth, will be more anemic than projected just seven months ago.

On a related note, Senators Hatch and Sessions wrote to the Medicare actuary today asking him to produce alternative projections in the 2011 trustees report that exclude “double counting” created under the health care law.  As you will likely be aware, budgetary accounting rules assume Medicare savings will be used both to create new entitlements AND to improve Medicare’s solvency, even though in practice both the CBO and the Medicare actuary agree that the Medicare reductions in the law “cannot be simultaneously used to finance other federal outlays and to extend the [Medicare] trust fund” solvency date.  The Hatch-Sessions letter merely asks the Medicare actuary to follow a standard President Obama himself alluded to in an interview last year, when he admitted that “You can’t say that you are saving on Medicare and then spending the money twice.”