Throughout the presidential campaign, Mitt Romney has had an oddly reactive approach to putting out policy proposals, seemingly flying by the seat of his pants and offering almost spur-of-the-moment, invariably ill-thought out policy ideas and usually defining himself by what he's not (i.e. Obama). Who can forget his tax plan, developed during the Republican primaries, which turns out to
raise the tax burden on the middle class (whoops!)? He's done it again now that Paul Ryan is his running mate.
He seems to have impulsively decided to move
up the date at which the Medicare trust fund becomes insolvent.
As Rick Perry might say: oops.
But first some perfunctory background. Broadly speaking, Medicare pays for hospitals services, services from doctors (e.g. like your family doc), and prescription drugs. In table form:
| Medicare Component | Pays For | Financed Primarily Through | Finances Go Into... |
| Part A | Hospital services | Payroll taxes | Hospital Insurance (HI) trust fund |
| Part B | Physician Services | General revenue/Monthly premiums from beneficiaries | Supplementary Medical Insurance (SMI) trust fund |
| Part D | Prescription drugs | General revenue/Monthly premiums on beneficiares | Supplementary Medical Insurance (SMI) trust fund |
(Part C is the privatized portion of Medicare--Medicare Advantage--that generally combines these three benefits in a single private health insurance plan for the 23% or so of Medicare beneficiaries who choose to go that route: and at only ~114% of the price of traditional Medicare!)
As the table should make clear, there are two trust funds to think about: one funded primarily by payroll taxes that covers hospital services and another funded primarily by general tax revenue (with another significant component coming from insurance premiums on seniors enrolled in Medicare) that pays for doctors' services and prescription drugs. This excellent Kaiser Family Foundation
primer on Medicare financing identifies a difference between these two trust funds that's worth noting:
A key difference in the structure of the HI and SMI Trust Funds affects their financial status. In the case of the HI Trust Fund, dedicated revenue may be greater or less than expenditures in any given year, so that in some years HI expenditures may exceed income, while in other years, reserve funds may be generated. By contrast, SMI Trust Fund financing does not produce excess revenue or shortfalls due to the way it is structured, with premiums and general revenue contributions adjusted each year in order to cover projected expenditures for that year. When
excess HI Trust Fund revenue is collected, the excess amounts are loaned to the federal government and used to pay for other federal obligations. Interest on the loans is credited to the Trust Fund as income.
So theoretically there is some money collected in the HI trust fund for spending on Medicare hospital services. Or rather, that money was loaned out to the rest of the government at interest to help pay for other things but it can be reclaimed when needed. But now that Medicare is
paying out more than it takes in, at some point the money in that trust fund--or owed to it--will be exhausted. At that point, Medicare won't be able to fully pay for its obligations to cover hospital services, though it can still pay out whatever the Medicare payroll tax is bringing in. But the coming insolvency of the HI trust fund is a serious concern, particularly since the shortfall the trust fund experiences will just continue to grow with time.
In 2009, before health reform (or the Affordable Care Act or ACA or Obamacare--whatever the kids are calling it these days) passed, the Medicare Trustees forecast that the HI trust fund would be exhausted in 2016/2017. Then the ACA passed and the next year that number receded to 2029. The continuing stumbling of the economy put a little damper on that and for the next two years (including this year), the Trustees' report put the date of insolvency at 2024.
The point is that the ACA pushed the HI trust fund's insolvency date back from being a few years from
now to being in the middle of the next decade. The catalyst for this change is the controversial
savings (or cuts, as the GOP prefers to put it) that got so much airtime and ad time during the midterm elections two years ago. These Medicare savings showed up primarily in three forms:
1. As I intimated above, the privatized portion of Medicare (known as Medicare Advantage) costs more per enrollee than traditional public Medicare. The reason is essentially that the process by which the federal government's payments to these private insurers on behalf of Medicare beneficiaries are determined is currently rigged in the private insurers' favor, allowing them to pick up outsized federal subsidies. The ACA dials these back, reducing the government subsidy to these private insurers over time to largely bring them in line with traditional Medicare.
2. Traditional (public) Medicare pays for hospital services according to a fee schedule. The ACA, assuming certain "productivity improvements," requires that those reimbursements increase more slowly over the next decade than they were otherwise scheduled to. These assumptions aren't baseless, as the ACA also contains some mechanisms to help hospitals (and other providers) achieve them. But it's going to be a challenge to make it all work.
3. A hodgepodge of other savings/cuts (though not to physicians; their payments are governed by a different law). For instance, Medicare pays certain hospitals extra to cover some of the costs of the uninsured; the theory is if there are less uninsured people under the ACA, those payments can start going down.
Together those savings push back the date of the HI trust fund's insolvency by several years because the trust fund is paying out less over the next decade thanks to them.
When House GOP Budget Chairman Paul Ryan (now Mitt Romney's running mate) was putting forth his budget proposals this year and last, he sought to include a plan to transform Medicare into a voucher program. The merits of that plan aside, people tend not to like change, particularly when they've been expecting or experiencing something else. The bigger the change you're proposing, the more important it becomes to make the change's implementation minimally disruptive. So Ryan delayed implementation of his proposed Medicare reforms for a decade, stipulating that they wouldn't start until 2022. That allowed Ryan to claim that no one currently receiving benefits would be affected by the changes, nor would anyone 55 or older, i.e. folks within 10 years of Medicare eligibility. It was only folks who were
11 years away from hitting Medicare eligibility at 65, the 54-year-olds and younger, who would be given a voucher.
But there's a problem here. If the HI trust fund is exhausted in 2016--assuming the ACA is repealed--then how does Ryan wait until 2022 to implement any kind of Medicare reforms? The answer is that he can't. So in writing his budgets, he retained the ACA's Medicare savings (while calling for the repeal of the
rest of the health reform law). The fact that Ryan tacitly endorsed them and virtually every federally elected Republican--in the House and Senate--voted for them didn't stop Ryan's party from shamelessly continuing to attack the President for his Medicare "cuts." (Now that he's in the national spotlight, Ryan has recently been called upon to explain why the cuts that his running mate routinely denounces were included in his budgets. His rather
lame answer:
"First of all, those are in the baseline, he [Obama] put those cuts in...It gets a little wonky but it was already in the baseline. We would never have done it in the first place.")
But running on Obama's Medicare cuts at the same time he was demonizing them on the campaign trail proved too much even for Multiple Choice Mitt. After being
unable to describe any difference between his plan for Medicare and Ryan's (the plans are, after all, virtually the same), by mid-week Romney had found a
major difference between his approach and his running mate's:
“My campaign has made it very clear: The president’s cuts of $716 billion to Medicare — those cuts are to be restored if I become president and Paul Ryan becomes vice president,” Romney said on “CBS This Morning.”
Nice! Jettison Ryan's baggage by not following his lead in adopting Obama's Medicare savings/cuts. Why did Ryan even embrace those in the first place? Oh, right...
It turns out this creates a problem for Mitt. He too has
pledged that under his Medicare plan
"Nothing changes for current seniors or those nearing retirement," meaning that none of his reforms begin until 2023 (i.e. the year in which a current 54-year-old would hit 65 and become eligible for Medicare). But by "restoring" Obama's savings/cuts, Romney moves the date of the HI trust fund's insolvency up to 2016 from 2024. Whereas Ryan had retained the hated cuts to keep the trust fund solvent until his reforms could kick in in the early 2020s, Romney is explicitly saying he won't do that.
Meaning that the trust fund will be exhausted in 2016, but Romney's reforms (a voucherization of Mediare similar to Ryan's proposal) won't kick in until 2023.
That makes for seven lean years in which Medicare can't meet the entirety of its hospital care obligations to current beneficiaries. Indeed, the magnitude of the shortfall and thus the degree to which current beneficiaries' services are cut into grows each year. Again, ignoring the merits of Romney's proposed reforms, under his plan there will be a seven year gap between the HI trust found becoming insolvent and
any reforms beginning.
To date he hasn't explained how Medicare beneficiaries are supposed to get by during their seven lean years and what, if anything, his administration is prepared to do to fix the problem. The Obama campaign seems to have noticed, mentioning at 1:38 of their latest video explaining Romney and Obama's differences on Medicare that "If Mitt Romney and Paul Ryan are elected, Medicare will be bankrupt by the end of their first term."
Good of them to reference it but this strikes me as a huge issue requiring more attention: Mitt Romney is pledging to
accelerate Medicare's spending, depleting the HI trust fund
more quickly, to the point that it will be exhausted within four years. And he's also promising not to reform Medicare in any way for a decade. That's huge. And I doubt it was intentional. More likely, it was an unintended (and unforeseen) consequence of Romney's constant ill-thought-out Not-Obamaism. But now is the time for the Obama camp to make him pay for it.
