海角大神

Last week I argued that budgeting for Medicare鈥檚 hospital insurance program is. Today, I offer two ways to fix it (and reject a third).

Medicare Part A is one of several federal programs that control spending through a 鈥渂elt and suspenders鈥� combination of regular program rules (the belt) and an overall limit (the suspenders). But it鈥檚 the only one that allows legislated savings to offset the costs of policy changes in other programs and extend the time before the overall limit constrains operations.

Congress can鈥檛 increase Social Security payroll taxes to pay for increased health care spending or reduce flood insurance subsidies to pay for tax cuts; in both cases, the resources stay within the affected programs. And when it cuts spending on Medicare Parts B and D to pay for other spending, no one claims those cuts will also postpone the day when trust fund exhaustion will disrupt their operations.

Such double counting is possible only in Medicare Part A. And it鈥檚 a real problem, creating needless confusion and reinforcing the sense that Washington plays fast and loose with budget numbers.

Happily, Congress knows how to fix this problem. All it needs to do is apply to Medicare A the practices used by one of the other programs that have 鈥渂elt and suspenders鈥� budgeting but avoid potential double counting.

One approach would be the rules used by the National Flood Insurance Program. As I discussed in more detail , those rules require that any legislated savings remain in the program. Lawmakers can鈥檛 reduce NFIP subsidies to pay for new spending in other programs. Instead, any savings are automatically earmarked to pay future NFIP claims that would go unpaid because of the program鈥檚 borrowing limit. (For an example, see .)

This approach brings the overall limit explicitly into the budget. But it makes for weird budgeting. For example, the budget baseline would show Medicare A breaking even over the long run, since the trust fund limit would take precedence over its fundamental deficits.

A better approach would adopt the rules used by Social Security. Those rules show Social Security running deficits far into the future in the budget baseline, but they still take the trust fund seriously when examining new legislation. Any proposed cuts to the program鈥檚 spending or increases in its revenues are 鈥渙ff budget鈥�. The Congressional Budget Office reports them, but Congress can鈥檛 use them to pay for other spending.

A recent Senate bill provides a telling example. The bill would expand the type of income subject to payroll taxes in order to pay for a one-year extension of low interest rates on student loans. Those low rates would cost $6 billion, but the Senate proposal would raise $9 billion. The bill had to overshoot that much because $3 billion comes from higher Social Security taxes and is thus off limits. Meanwhile, the $6 billion in usable revenues comes from Medicare Part A, which is considered 鈥渙n budget鈥� despite having a trust fund just like Social Security鈥檚.

That difference highlights the inconsistency in current budgeting. If policymakers believe the Part A trust fund is as sacrosanct as Social Security鈥檚, they should provide the same budgetary protection: Part A savings should be off budget, where they couldn鈥檛 be used to pay for health reform, student loans, tax cuts, or anything else outside the hospital insurance program.

If Congress doesn鈥檛 believe the trust fund deserves that protection, it should adopt a third approach: make the Part A fund as operationally toothless as the one for Medicare B and D. Those programs spend much more than they receive, so their trust fund has unlimited ability to draw on general revenues. If the same were true for Medicare Part A, program changes could be used to pay for health reform (as they were in 2010) or anything else, just like any other mandatory program. But we wouldn鈥檛 have any confusion over whether those changes also extend the program鈥檚 ability to operate.

The Social Security and Medicare B and D approaches both make more sense than the mishmash that applies to Medicare A today. I think the Medicare B and D approach is the better of the two, not least because it would put all the parts of Medicare on equal footing. But one could certainly argue for the Social Security approach instead. That鈥檚 the discussion we should have now so that we can avoid needless double-counting debates in the future.

P.S. Several readers noted an important qualification to my Social Security discussion in my earlier post. Many experts believe past Social Security surpluses have been used to finance deficits in the rest of the budget and, as a result, Social Security resources have been paying for higher spending or lower revenues elsewhere in government. I agree. My comments in these posts apply only to explicit budgeting decisions, like those in 2010鈥檚 health reform or today鈥檚 student loan legislation. In that context, Social Security savings cannot be legislatively used to pay for other programs. But they still might have indirect effects. For example, by reducing future unified budget deficits, Social Security savings might weaken future congressional efforts to reduce deficits outside Social Security.