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“Senior citizens get this more than any other segment of our population, because they know in Obamacare the president of the United States took away $500 billion -- a half-trillion dollars -- out of Medicare, shifted it to Obamacare to pay for younger people. And it's senior citizens who have the most to lose in Obamacare."

— Rep. Michele Bachmann  (R-Minn.) at the GOP debate, June 13, 2011

 “Obamacare takes $500 billion out of Medicare and funds Obamacare.”

— Former Massachusetts governor Mitt Romney, at the debate

The two Republican aspirants perceived to have performed the best in the GOP debate broadcast Monday by CNN made strikingly similar claims about the impact of the new health care law on Medicare. Bachmann, as usual, made her assertion in a more colorful and memorable statement.

 Their comments are an echo of the politically effective — but misleading — charge the GOP made against Democrats in 2010 midterm elections — that the health care law “cut” $500 billion from Medicare. In this case, the candidates are suggesting President Obama is robbing Peter to pay Paul.

 Several readers have also asked us to explain why the House Republicans retained these $500 billion in “savings” in their Medicare reform bill, and how that would be different than Obama’s plan.

 Essentially, the federal budget is like a funhouse mirror so it looks completely different depending on where you stand.  We will try to make this all clear without getting too much in the budgetary weeds.


The Facts

 First of all, under the health care bill, Medicare spending continues to go up year after year. The health care bill tries to identify ways to save money, and so the $500 billion figure comes from the difference over 10 years between anticipated Medicare spending (what is known as “the baseline”) and the changes the law makes to reduce spending. (Look at slide 15 of this nifty tutorial on the law’s impact on Medicare by the Kaiser Family Foundation to see a chart of the year by year savings.)  

The savings actually are wrung from health-care providers, not Medicare beneficiaries. These spending reductions presumably would be a good thing, since virtually everyone agrees that Medicare spending is out of control. In the House Republican budget, lawmakers repealed the Obama health care law but retained all but $10 billion of the nearly  $500 billion in Medicare savings, suggesting the actual policies enacted to achieve these spending reductions were not that objectionable to GOP lawmakers.

 The Obama health care law also raised Medicare payroll taxes by $113 billion over 10 years, further strengthening the program’s financial condition, according to the Congressional Budget Office. Since about half of the $500 billion stems from reduced outlays for Medicare hospitalization expenses, the payroll taxes and those reductions would add about $358 billion to Medicare trust fund balances.

 (Lay aside, for the moment, any suspicion that the trust funds are fictitious. On paper, at least, the program would be strengthened. We have previously examined whether this apparent double-counting makes sense.)

 Under the concept of the unified budget, however, money that is collected by the federal government for whatever purpose (such as Medicare and Social Security payroll taxes) is spent on whatever bills are coming due at that time. Social Security and Medicare will get a credit for taxes collected that are not immediately spent on Social Security, but those taxes are quickly devoted to other federal spending.

 In the health care bill, the anticipated savings from Medicare were used to help offset some of the anticipated costs of expanding health care for all Americans. In reality, the money is all fungible, but Romney is on relatively solid ground when he says “Obamacare takes $500 billion out of Medicare and funds Obamacare.”  (We would quibble with the phrase “take out” for the reasons explained above.)

 Bachmann’s statement is more problematic as she makes it an issue of pitting the elderly vs. the young. As she put it, “the president of the United States took away $500 billion — a half-trillion dollars — out of Medicare, shifted it to Obamacare to pay for younger people. And it's senior citizens who have the most to lose in Obamacare.”

 The health care bill, as mentioned, actually puts Medicare on a more solid financial footing. Also, the health care law improved some benefits for seniors, such as making preventive care free and closing a gap in prescription drug coverage known as the “doughnut hole” — improvements that the House Republican bill actually would repeal.

 Indeed, the savings achieved from Medicare couldn’t have been so damaging if Bachmann had in effect voted for them when she approved the House Republican budget. (A campaign spokeswoman for Bachmann did not respond to an inquiry.)

 This brings us to the House Republican budget and its use of virtually the same $500 billion in Medicare savings.

Spokesmen for Rep. Paul Ryan (R-Wis.), the chief architect, insist there is a difference because Obama was using the savings for a new entitlement program (universal health care) and instead Ryan would use the money to help fund reforms in Medicare.

 “The defenders of the new law explicitly say that the law reduces Medicare spending (and raises taxes) so that the government may spend an equivalent amount of money on something else,” said House Budget Committee spokesman Stephen Spruiell. “By contrast, we think that any current-law Medicare savings should actually go toward preserving the program and putting the government in a better position to fund Medicare for today’s seniors and to save it for future generations.”

 Under the unified budget, this line of argument doesn’t make much sense. The Medicare savings will be spent however the government deems to use it; it will not be earmarked for Medicare.

One can argue (as Republicans do) that creating a new government entitlement program will weaken government finances (see video of Paul Ryan below) but the counterargument by Democrats is that the new health care law will help control health care costs that are crippling government finances.

 In fact, House Speaker John A. Boehner (R-Ohio) recently had the audacity to claim that “the only people in Washington, D.C., who have voted to cut Medicare have been the Democrats when they voted to cut $500 billion in Medicare during Obamacare.”

This is surely an example of having your cake and eating it too. The Republicans had a chance to repeal those cuts when they voted to repeal the health care law, but instead they adopted “current law” (ie, the Medicare cuts) in their budget. Technically, we guess, that means they did not vote for them but, as we have documented, Republicans in the past have voted for similar Medicare cuts.

Bachmann’s assertion that Obama is stealing from seniors to benefit the young is undercut by the fact that the Congressional Budget Office, when it analyzed the Ryan plan, concluded that it would put significant pressure on people younger than 55, who would have no choice but to accept it. (The traditional fee-for-service plan of Medicare eventually would fade away as people now older than 55 die off.)

 Medicare beneficiaries “would bear a much larger share of their health care costs than they would under the current program,” payments to doctors would shrink dramatically, states would have to pay substantially more for Medicaid and spending for programs other than Social Security and health programs “would be reduced far below historical levels relative to GDP [Gross Domestic Product],” the CBO said.

 In other words, the young would potentially lose under the Ryan plan.

 Romney was not asked about the Ryan plan during the debate and his spokesman did not respond to a question about whether he saw a difference in the use of the cuts. “The Governor’s statement is factually correct – Obamacare is financed in part by cuts to Medicare,” said Eric Fehrnstrom.


The Pinocchio Test

 Romney’s statement (and, to some extent, Boehner’s recent remark) fall in the category of technically correct but misleading. It’s rather rich for Republicans to complain about $500 billion in supposed cuts to Medicare that they themselves would retain, even under the cover of helping Medicare.

 Bachmann’s statement is further off the mark because of her assertion that seniors would suffer at the hands of the youth. The Medicare savings in the health care law are aimed at providers, not seniors; meanwhile seniors stand to benefit from aspects of the health care law that Republicans want to repeal. On top of that, people younger than 55 might face significantly higher premiums under the GOP plan for Medicare. We’re giving her two Pinocchios.


Two Pinocchios


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Watch Paul Ryan’s Argument on Medicare Savings