Critics Call Double-Counting of Medicare Savings ‘Accounting Gimmick’

By Adam Cassandra | August 12, 2010 | 4:12 PM EDT

Treasury Secretary Timothy Geithner, second from right, speaks about the Social Security and Medicare Trustees Report, Thursday, Aug. 5, 2010, at the Treasury Department in Washington. Joining him, from left are, Social Security Administration Commissioner Michael J. Astrue, Labor Secretary Hilda Solis, and Health and Human Services Secretary Kathleen Sebelius. (AP Photo/Charles Dharapak)

( – Despite reports by the Congressional Budget Office (CBO) and the Centers for Medicare and Medicaid Services (CMS), as well as criticism by congressional Republicans  that the Obama administration is double counting the estimated Medicare savings accrued through the new health care law,  Health and Human Services Secretary Kathleen Sebelius insists there is no double counting or accounting gimmickry.
According to the report released last week by the trustees for Medicare, the program is expected to remain solvent until 2029 – 12 years longer than was projected last year – and nearly all of the projected savings in Medicare finances is due to provisions in the Patient Protection and Affordable Care Act (ACA) passed into law last March. 

The CMS estimates that $575 billion will be saved over the next 10 years.
Top Republicans recently issued statements that reference the CBO and the CMS, claiming the Obama administration is using accounting gimmicks to mis-report on the savings estimated in the report.
“Simple logic says that you can’t spend and save the same dollar – but logic doesn’t apply if you’re a Democrat in Washington,” said House Minority Leader John Boehner (R-Ohio). “The trustees’ report confirms that Medicare’s future now rests on Washington Democrats’ accounting gimmicks and tricks, a risk America’s seniors are by no means eager to take.”
“(T)he chief Medicare actuary has already blown the whistle on the Obama administration for attempting to pass off cuts as ‘savings’ within Medicare when, in fact, the money is being used to establish a new federal entitlement and massive new bureaucracies,” said Boehner.
That is where the apparent double counting comes in: the estimated $575 billion in savings is slated to be used to pay for an expansion in Medicare services while at the same time extending the life of the Medicare Trust Fund to 2029.
When asked about this apparent double counting last week, CMS Director Jonathan Blum said, “I think it’s been a consistent budget convention to use Medicare, which as you know is a pay as you go program, that is all paid with a unified budget.
“And when you have few outlays in place of the Medicare trust fund that it both extends the life of the trust fund, because you’re paying less in benefits, but it also produces surplus to the overall federal budget,” Blum added.
Boehner referred to a report issued by CMS chief actuary Richard Foster in April, which said improvements in Medicare financing cannot simultaneously be used to fund other federal activities.
The report by Foster addresses the use of accounting practices that the Obama administration says extends the solvency of Medicare, while simultaneously funding new health care spending.
“The combination of lower (Medicare) Part A costs and higher tax revenues results in a lower Federal deficit based on budget accounting rules,” the CMS chief actuary states.  “However, trust fund accounting considers the same lower expenditures and additional revenues as extending the exhaustion date of the (Medicare) trust fund.”
“In practice, the improved (Medicare) financing cannot be simultaneously used to finance other Federal outlays (such as the coverage expansions) and to extend the trust fund, despite the appearance of this result from the respective accounting conventions,” according to the report.
On a conference call last Monday, Sebelius was asked about the CMS chief actuary’s report. She said that the actuary’s assessment was “not correct,” and that he had a “different interpretation” of the accounting.
“There are two different operating methods of looking at this, and the CMS actuary in the report that you cite differs in his strategic opinion from every accounting methodology that’s used for every other program in the federal budget, that has traditionally been used for Medicare,” Sebelius said, as reported in The American Spectator.
“And he has a different interpretation that is not agreed upon by either the Congressional Budget Office or the OMB or traditionally in Congress,” she said.
Rep. Paul Ryan (R-Wis.), ranking Republican on the Budget Committee, said the Obama administration is basing its good news about Medicare on double-counting of Medicare savings. Ryan, who has his own plan to make Medicare solvent, claims that the unfunded liabilities posed by Social Security and Medicare amount to $43 trillion today, or about $380,000 per household.
“Manipulation of the books does not change the grim outlook for these programs or the Federal budget,” Ryan said.
The CBO sent a letter to Ryan in March, saying that the majority of Medicare trust fund savings under the health care bill would be used to pay for other spending and “therefore would not enhance the ability of the government to pay for future Medicare benefits.”
The CBO also sent a letter Sen. Jeff Sessions (R-Ala.) last December in which it said that describing the full amount of Medicare trust fund savings as both improving the government’s ability to pay future Medicare benefits and financing new spending outside of Medicare “would essentially double-count a large share of those savings and thus overstate the improvement in the government’s fiscal position.”
On a conference call last Thursday, asked Robert Greenstein, executive director of the Center on Budget and Policy Priorities, to explain the double-counting issue.
“Basically there’s overall budget accounting of the entire federal budget, including Social Security and Medicare, and there’s trust fund accounting of the Social Security and Medicare Hospital Insurance trust funds,” Greenstein said. 
“The double counting sort of comes out of a very understandable confusion, but nonetheless it is a confusion, of how the two types of accounting relate to each other,” he added.
Greenstein, who focuses on fiscal policy and public programs that affect low- and moderate-income families and individuals, told that the Obama administration’s assessment of the accounting and use of Medicare savings was completely appropriate.
“There’s nothing inappropriate,” said Greenstein. “There’s no gimmick. It’s not double-counting. It is what it is. This is the same type of accounting that’s been applied to every piece of Social Security and Medicare legislation for many decades. Nothing new.
“It’s not as though one is taking a dollar and putting it in the same place twice,” Greenstein added. “The dollar goes where it goes, and it has two effects at the same time, and they’re not in conflict, because they’re two entirely different modes of accounting.”