“What people don’t realize is, because of Obamacare, Medicare is going broke.”
— House Speaker Paul D. Ryan (R-Wis.), interview with Fox News, Nov. 10
Our eyebrows went up when we saw this quote from Ryan. It has been a bipartisan fallacy to claim that the old-age health program Medicare is going “broke,” which is incorrect for the reasons outlined below. But what was notable was he specifically blamed the Affordable Care Act for making Medicare go broke.
That’s doubly wrong. Let’s explain.
“Broke” is an informal way of saying “bankrupt.” Or, as the dictionary says, “penniless.” President Obama and Vice President Biden in the past have also used this word to the describe Medicare’s finances, so Ryan is certainly not alone in using this misleading phrasing.
First of all, there are four parts to Medicare, which covers 55 million people: 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). Total Medicare expenditures were $648 billion in 2015, according to the latest Medicare trustees report.
But when politicians say “broke,” they are not talking about all of Medicare — just Part A, which 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, as is Part D. Thus, if costs rise, premiums can be adjusted. But Part A is financed mainly through payroll taxes of 1.45 percent on earnings paid both by workers and employers; self-employed people pay 2.9 percent. The money raised is then credited to a pay-as-you-go trust fund, which uses the revenue raised to pay the benefits of Medicare beneficiaries.
With the baby-boom generation retiring at a rate of 10,000 people per day, that puts pressure on the long-term financing of the program because fewer workers will be supporting more retirees. Under current estimates, the trust fund will be depleted by 2028.
Although the Part A trust fund would be “depleted,” it would not be “penniless” or “broke.” That is because the government could still cover 87 percent of estimated expenses in 2028 — and 79 percent in 2040. So, yes, there would be a shortfall, but it doesn’t mean Medicare would be bankrupt.
There is no provision to use general revenue to make up the deficit, but there are various ways that Congress could deal with this problem, as it has in the past. In fact, from its inception, the Part A fund has been on the brink of going “broke.” Page 4 of a useful report by the Congressional Research Service, titled “Medicare: History of Insolvency Projections,” shows that in 1970, it was due to go “broke” in 1972.
So it’s bad enough to claim that Medicare is going broke. Now let’s turn to Ryan’s claim that Medicare is going broke because of Obamacare. It’s just a very strange comment.
The Affordable Care Act actually strengthened the near-term outlook of the Part A trust fund. The law includes a 0.9 percent payroll tax that hits the wages and self-employment income of wealthier Americans — above $250,000 per couple or $200,000 for a single taxpayer. That was estimated to raise an additional $63 billion for the Part A trust fund between 2010 and 2019. The law also was estimated to cut expenses, including $162 billion in productivity adjustments to provider payments and $86 billion in reduced payments to Medicare Advantage plans.
The net result was that the “insolvency” date was extended by 12 years . Before the law was passed, the trustees said in 2009, the fund was going to be depleted in 2017. “The short-range financial outlook for the HI [hospital insurance] trust fund is substantially more favorable than projected in last year’s annual report, primarily as a result of the Affordable Care Act,” the Medicare trustees said in their 2010 report, saying the fund would last until 2029.
(Note: Some Republicans have argued that the administration “double-counted” the savings from Medicare in order to fund Obamacare. For complicated reasons we have explained before, this is an acceptable government accounting practice that both parties have used to calculate the solvency of Medicare. A strong case can be made that there is no double-counting going on at all. It’s simply a case of looking at the same money in different ways. In other words, it is not double counting, but counting different things.)
In the 2016 trustees report, the fund was estimated to be depleted in 2028, two years earlier than the 2015 report, primarily because the consumer price index, representing inflation, did not rise as much as anticipated, reducing income projections. (In the long run, however, lower inflation will also reduce Medicare expenditures.) But that’s unrelated to the Affordable Care Act.
In fact, Republicans have vowed to repeal Obamacare, which would in turn make the trust fund’s situation instantly worse unless lawmakers found a way to make up the payroll tax revenue and program savings embedded in the Affordable Care Act.
We asked Ryan’s office for specific examples of how Obamacare was making Medicare go broke. AshLee Strong, Ryan’s spokeswoman, responded with a general statement: “By creating a new entitlement, raiding Medicare, and expanding Medicaid, Obamacare is putting even more fiscal pressure on our current health care programs and threatening seniors’ access to care. It is obvious to anyone, either the program goes broke or the government starts rationing care. Neither is acceptable.”
The Pinocchio Test
Medicare certainly faces financial stress as the baby-boom generation begins to retire in full force, but it’s important to get the facts straight. It’s bad enough that Ryan, like many politicians, uses imprecise rhetoric such as “broke”; that’s a Two-Pinocchio violation. But the House speaker really went off the rails when he said on national television that Obamacare is making the program go broke. That’s the exact opposite of what happened.
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