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The bizarre baseline games you need to play to make Obamacare increase the deficit

By Ezra Klein,

So, about that new study arguing that the Affordable Care Act actually increases the deficit: It’s really not saying anything in particular about the Affordable Care Act. It’s saying that the baseline we use to assess all legislation — from Obamacare to Paul Ryan’s budget — is wrong. And it’s saying that we actually don’t have a deficit problem at all.

The study is written by Charles Blahous. Part of the interest in it comes because Blahous is, technically, an Obama appointee. But the position he’s appointed to — the trusteeship for Medicare and Social Security — is unusual. By tradition, it’s evenly split between Republicans and Democrats. And Blahous is in one of the Republican seats. Previously, he was an economic policy adviser in George W. Bush’s White House, and before that, policy director to Sen. Judd Gregg. None of that undermines the quality of his work or the force of his conclusions. But it’s not the case that someone from Obama’s “team” has turned on the Affordable Care Act.

Blahous’s argument is this: There’s a trust fund for Medicare. That trust fund, prior to the Affordable Care Act, was expected to run out in 2016. But the Affordable Care Act partially pays for itself through $500 billion in Medicare cuts. That’s delayed Medicare’s looming bankruptcy.

This is where things get a bit tricky: Blahous believes that you should treat Medicare’s insolvency as a kind of guaranteed spending cut. After all, Medicare isn’t allowed to spend beyond its trust fund. So, under his baseline, Medicare doesn’t begin running deficits in 2016. It either cuts benefits or some other solution is found. Under that theory, the Affordable Care Act, by cutting Medicare spending, is cutting spending that would never have happened. Or, as Blahous puts it, Obamacare’s Medicare cuts are “substitutions for spending reductions that would have occurred by law in the absence of the ACA.”

The implication of Blahous’s baseline is that we don’t have a deficit problem. Anywhere. Medicare won’t contribute to deficits because it can’t spend beyond the trust fund. Social Security, similarly, can’t contribute to deficits because it can’t spend beyond its trust fund. As Jonathan Chait puts it:

If Blahous’s assumptions are right, then we don’t really have an entitlement problem at all. Medicare can’t exceed its trust fund, so problem solved! You know how Paul Ryan has been stalking the halls of Congress with disaster-movie music in the backdrop, warning that we’re about to become Greece? He should relax! (Also, Blahous’s methodology would show that Ryan’s budget looks way worse, too.)

Anyway, that’s the trick. Assume the Medicare savings don’t count because Medicare would have reduced its payments anyway, and boom — Obamacare now increases the deficit.

In a sense, there’s nothing new here: This is the “double counting” argument we heard during health-care reform. But the Congressional Budget Office, which doesn’t muck around with trust funds, doesn’t double count. Their calculation that the law saves and taxes more than it spends remains the same. Blahous hasn’t discovered some heretofore unknown fact about the Affordable Care Act. He’s just showing that if you change the budgetary rules to specifically disadvantage Obamacare, you can make the law look worse.

But to get that answer, you have to abandon the idea that the right way to score a bill is to see if more money is coming in then going out. That’s what Blahous has done here. But no one is interested in actually moving to that kind of a baseline. That baseline would mean neither Medicare nor Social Security’s looming fiscal challenges actually add to the deficit. That baseline would mean the “Obama deficits” are quite small. That baseline would mean Paul Ryan’s budget is “double counting.”

Lots of the Affordable Care Act’s skeptics are trumpeting the Blahous study. But none of them actually use that baseline. Nor do they plan to switch over to it. And that means they don’t really believe the study.

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