Which protects Medicare better, the Ryan budget or the Affordable Care Act?
That’s shaping up to be the big policy question of the presidential election. Medicare’s trustees say that the cuts to the program included in the ACA will maintain the solvency of the Medicare hospital insurance trust fund for another eight years. Critics, such as Romney campaign adviser Avik Roy, argue that the ACA cuts don’t help the program’s solvency because they go to fund insurance coverage for low- and middle-income people. In the Ryan budget, Roy argues, the same cuts are preserved but used to shore up the trust fund.
Think about it this way. The ACA grows the trust fund by giving more general revenues to the Treasury, which then gives the trust fund bonds. But it then uses the money from those bonds to expand coverage for low- and middle-income people. The Treasury is effectively loaning money from Medicare to spend on insurance subsidies — it still needs a way to pay off that loan. That way could be increased taxes, lower spending on other priorities or a bigger federal deficit, but it’s a cost nonetheless.
But the Affordable Care Act also uses its savings from Medicare to strengthen the program’s benefits, such as by closing the “donut hole” that leaves about $3,500 in each senior’s prescription drug spending uncovered, and by waiving Part B premiums for certain preventive services. Then there are a host of reforms to help Medicare learn how to pay for quality rather than for volume. The administration argues that their plan gives seniors more bang for their buck, and that this strengthens Medicare in a more meaningful sense than by improving its long-term fiscal outlook.
So what about the Ryan plan? Well, it preserves the cuts in the Affordable Care Act, so it shores up the trust fund by an equivalent amount. But the Romney-Ryan campaign is now promising to reverse the ACA’s cuts, which would render the HI trust fund insolvent in 2016 rather than 2024.
For the sake of argument, though, suppose the ticket changed their mind on those cuts and implemented Ryan’s plan, as laid out in his proposed budget for 2013. According to the CBO (pdf), within 10 years Ryan cuts Medicare spending by 0.5 percent of GDP relative to the Affordable Care Act. That’s another $75 billion in payroll taxes that can go to general revenue each year, generating bonds for the trust fund.
In short: The Affordable Care Act shores up the trust fund but it’s not clear that means much. The Ryan budget shores it up in a more meaningful way but repeals the ACA’s new benefits for seniors. The Romney-Ryan plan to reverse the ACA’s cuts weakens the trust fund considerably, and their plan to repeal the ACA as a whole would hit seniors’ new benefits as well.