Obamacare’s ‘savings’ rely on Enron accounting 

Senate Majority Leader Harry Reid proudly declares that the Senate health care reform bill “saves money and saves Medicare,” reducing the budget deficit by $132 billion in a 10-year span while extending Medicare’s solvency.

In fact, only by double-counting savings from Social Security and Medicare does the Nevada Democrat’s plan reduce government borrowing. Without this dubious accounting, the Reid Senate bill increases the non-Social Security/Medicare deficit by almost $250 billion. A surprisingly frank new Congressional Budget Office analysis cries foul on this off-the-books borrowing.

The accounting mischief begins with Social Security. The Reid Senate plan imposes a 40 percent excise tax on so-called “Cadillac” health plans with premiums above $8,500 for singles and $23,000 for families.

But most insurers are smart enough to avoid this tax. Instead, insurers will reduce health premiums below the taxable levels while increasing co-pays and deductibles. Since health premiums are nontaxable, reducing them would increase employees’ taxable wages, boosting Social Security revenue by $52 billion through 10 years.

Of course, when workers pay more Social Security taxes today, they’re owed higher benefits at retirement. But the Reid Senate health bill spends the extra Social Security revenue today, meaning we won’t have the cash to pay those larger Social Security benefit bills when they come due.

It’s not just balanced-budget purists who condemn this double-bookkeeping. Reid himself does — or at least he used to. In 1990, he said, “Are we as a country violating a trust by spending Social Security trust fund monies for some purpose other than for which they were intended? The obvious answer is yes.” As an attorney, Reid said, someone doing this outside of government would be prosecuted.

It’s a good thing Reid is not back in the private sector, since his Senate health care reform bill’s accounting abuse of Medicare goes even further. The Reid Senate plan includes $438 billion in cuts to Medicare Advantage plans, hospitals and fee-for-service payments.

The cash savings from these Medicare reductions, like the new Social Security taxes, cover other costs in the health plan, like expanding Medicaid and subsidizing private health insurance premiums.

But more than $300 billion of these cuts also are credited to the Hospital Insurance trust fund. These new federal IOUs extend the fund’s life by several years, allowing Democrats to claim the Reid Senate bill helps rather than guts Medicare.

But a Dec. 23 CBO analysis directly undercuts Reid’s claims. Under the Senate health bill, the CBO reported, “the majority of the [Hospital Insurance] trust fund savings would be used to pay for other spending ... and would not enhance the ability of the government to redeem the bonds credited to the trust fund to pay for future Medicare benefits.”

This is the very definition of a “raid” on the trust fund: Medicare gives us cash, which we spend, while we give Medicare a series of IOUs backed only by Washington, D.C.’s willingness to raise taxes in the future.

As the Obama administration’s own budget documents acknowledge, these trust fund “balances are available for future benefit payments ... only in a bookkeeping sense.” There’s no real cash there, particularly so when Social Security and Medicare revenues are raised for the very purpose of spending them on other things.

Medicare’s chief actuary, Rick Foster, declared in December that Medicare cuts “cannot be simultaneously used to finance other federal outlays and to extend the trust fund, despite the appearance of this result from the respective accounting conventions.” Reid once railed against these dubious accounting conventions, but now he embraces them.

In total, the Reid Senate health bill borrows more than $350 billion from Social Security and Medicare. But this borrowing is “off the books,” meaning it’s not generally reported as part of the government’s debt.

The national debt measured in total — meaning debt held by the public plus debt to Social Security and Medicare — will unambiguously rise under the Senate bill.

This “off-balance sheet borrowing” resembles Wall Street financial scandals, yet without such practices the truth of the Senate health bill would be clear: It borrows far more than it saves, and it weakens the nation’s fiscal position at a time when it’s already under threat.

Dodgy accounting is hardly the only sin in Reid’s health plan, but it hides a multitude of other ones.

Andrew G. Biggs is a resident scholar at the American Enterprise Institute.

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