Obamacare ‘raids’ Medicare? Not exactly

Responding to accusations by Democrats and liberal groups that Republicans are trying to “end Medicare as we know it,” GOP candidates have been blasting Democrats for cutting billions from Medicare to fund the 2010 healthcare reform law, better known as Obamacare. As the party’s presumptive vice presidential nominee, Rep. Paul D. Ryan of Wisconsin, said last week, “[T]he president took $716 billion from the Medicare program -- he raided it -- to pay for Obamacare.”

Ryan’s an odd messenger on this point. That’s not just because the budget resolutions he wrote would have left that Medicare “raid” in place, but because the reductions in Obamacare reflect a Ryan-like faith in Medicare’s ability to provide the same level of service with less money.

The 2010 Patient Protection and Affordable Care Act slows the growth in Medicare spending in several ways, including smaller automatic increases in payment rates for treatment providers and lower subsidies for private insurers. These two changes account for the largest savings -- $571 billion over 10 years, by the Congressional Budget Office’s estimate. Both of them operate on the theory that the recipients of Medicare dollars can and should deliver better value of the money.

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That’s what Ryan has been trying to do to, albeit through a very different mechanism. Starting in 2022, Ryan would give new Medicare beneficiaries vouchers that grow from year to year at a slower rate than medical expenses have been growing. Private insurers would then compete with Medicare for these beneficiaries’ business. The theory is that competition at the insurer level will force providers to deliver better value for the money.

The Affordable Care Act also tries to slow the growth of Medicare by prodding healthcare providers to deliver higher-quality care. Two examples: It reduces payments to hospitals that readmitted Medicare patients shortly after they’d been discharged, and that had an excessive rate of hospital-acquired maladies. And it cuts the extra Medicare payments to hospitals that treat a lot of patients who can’t pay their bills, on the reasonable assumption that the act will extend insurance coverage to millions of uninsured Americans.

There’s one other problem with the “raiding” argument. Although Medicare is funded to some extent by payroll taxes, it “raids” the U.S. Treasury to the tune of more than $220 billion a year to help cover the cost of recipients’ doctor bills and prescription drugs. That’s about three times as much as the 2010 law trims from Medicare spending annually.

In other words, the Affordable Care Act reduces the amount that Medicare takes from the Treasury for the sake of subsidizing a different group: the non-elderly working poor and lower middle class. Ryan can argue that we shouldn’t help those people afford insurance, but he can’t honestly say the law steals anything from the Medicare trust funds.

In fact, the law brings more money into the Medicare Hospital Insurance trust fund -- an estimated $318 billion over 10 years -- by hitting upper-income households with a 0.9% payroll-tax surcharge and a 3.8% tax on investment income. As someone with an intimate knowledge of the federal budget and the way money flows in and out of the Treasury, Ryan knows this. But he’s hardly the first pol to let the facts get in the way of a good applause line.

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