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Lindsey Graham’s ‘bankruptcy’ trifecta

at 06:00 AM ET, 12/10/2012


(JASON REED/REUTERS)

“I think we’re going over the cliff. It’s pretty clear to me they made a political calculation. This offer doesn’t remotely deal with entitlement reform in a way to save Medicare, Medicaid and Social Security from imminent bankruptcy. It raises $1.6 trillion on job creators that will destroy the economy and there are no spending controls.”

— Sen. Lindsey O. Graham (R-S.C.), on CBS’s “Face the Nation,” Dec. 2, 2012

In dismissing the administration’s offer to resolve the so-called “fiscal cliff,” Sen. Graham referred to the “imminent bankruptcy” of Medicare, Medicaid and Social Security.

We have warned before that politicians in both parties are guilty of misusing such phrases as “bankruptcy” or “broke” when talking about Medicare. But Graham hits the trifecta here — Medicare, Social Security and Medicaid. We take no position on whether the White House’s proposals are adequate, but what’s he talking about?

 

The Facts 

Medicare is an old-age health-care program, while Medicaid delivers health care for the poor. Social Security is designed to provide workers with a basic level of income in retirement, as well as disability pay and life insurance while they work.

But as we have explained before, there are four parts to Medicare: Part A (hospital insurance), Part B (medical insurance), Part C (Medicare Advantage — private plans for parts A and B), and Part D (prescription drug plans). 

When Graham speaks about the “imminent bankruptcy” of Medicare, he is only speaking about the Part A trust fund, which would be exhausted by 2024.

Thus, we are not talking about all of Medicare, just the part that covers hospital visits, hospice care, nursing facilities and the like. Part B, which involves seeing a doctor, is paid out of general funds and premiums.

Moreover, though the fund would be “depleted,” it would not be “bankrupt.” That is because the government could still cover 87 percent of estimated expenses in 2024 — and 67 percent in 2050. So, yes, there would be a shortfall, but it doesn’t mean that the fund is bankrupt.

Indeed, the Medicare Part A fund from its inception has been on the brink of going “bankrupt.” The Congressional Research Service, in a report titled “Medicare: History of Insolvency Projections,” shows that in 1970 it was due to go “bankrupt” in 1972.

As for Social Security, once again Graham is pointing to just a part of the program — the trust fund for disability payments. Spokesman Kevin Bishop pointed to an article in The Washington Post that said the disability trust fund “is headed for insolvency in four years.”

 Four years certainly might meet one’s definition of “imminent.” But again it is not a question of bankruptcy but being unable to make full payments.

The disability fund has come under strain because of a combination of older workers and the weakness of the economy, leaving fewer jobs for people with marginal disabilities. Once the trust fund is exhausted, benefits would continue to be paid, but at a lower level — 79 percent — because incoming payroll-tax revenue would not be sufficient.

But the trust fund for the broader Social Security retirement programs is not projected to be depleted until 2033 — and Congress could in fact authorize the disability fund to borrow from the retirement fund. (It has happened before: The retirement fund in 1982 borrowed from the disability fund and the Medicare Part A fund when it was facing a shortfall.)

(For more on the financing of Social Security, read our popular primer.)

 As for Medicaid, we have no idea what Graham is talking about. Medicaid has no trust fund but is funded through general revenues in partnership with state governments. The rising cost of health care — and increased enrollment in Medicaid — has certainly put pressure on state government finances. But that’s completely different from saying the program is going bankrupt.

 Bishop did not respond to a query asking for an explanation of Graham’s Medicaid comments.

 

The Pinocchio Test

 We acknowledge that serious financial challenges face Social Security and Medicare as the baby-boom generation begins to retire in full force, putting additional pressure on the federal budget. But we have previously given lawmakers Two Pinocchios for claiming that Medicare was going broke, warning that the facts do not justify such rhetoric.

 In this case we are going to bump Graham up to Three Pinocchios. Not only did he repeat the error of treating all of Medicare as one entity, but he did the same with Social Security. Moreover, his reference to Medicaid makes little sense, even if one has very expansive definitions of the words “bankruptcy” and “imminent.”

Three Pinocchios





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    About the Blogger

    Glenn Kessler has covered foreign policy, economic policy, the White House, Congress, politics, airline safety and Wall Street.

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