Talking Point vs Reality: Health Care Reform’s Effect on Medicare

by Bruce Webb

The latest Republican talking point, promoted among others by Chuck Grassley this morning, is that proposed cuts to Medicare make its financial situation more precarious. Why cut $500 billion if Medicare is already in trouble? This is totally backwards and shows a total unawareness of how Medicare is financed. So lets review:

Medicare has four ‘Parts’ A (Hospital), B (Physicians), C (Medicare Advantage) and D (Drugs).

Part A is financed primarily by a tax on payroll supplemented by co-pays for extended stays. Tax receipts not needed for immediate payout are deposited in the HI (Hospital Insurance) Trust Fund which like its counterparts in Social Security functions as a reserve fund, serving to buffer out fluctuations in tax income.

Parts B & D are financed by a combination of premiums and direct transfers from the General Fund, while Part C being a combination of A, B, and D draws from all three sources and is run by insurance companies.

The Health Care bills under consideration leave current revenues into Medicare alone and so CAN’T worsen the overall financial health of the system. Instead they propose to change the payment mix going out and slash the extra premium going to Part C and so make the overall financial position BETTER. These changes actually move the date the HI Trust Fund is projected to go to depletion OUT IN TIME.

Now it is fair to argue that cuts in Medicare potentially deprive people on Medicare benefits they have come accustomed to, but the argument that they financially weaken Medicare is to get it 180 degrees reversed. Republicans have been bleating about an ‘entitlements crisis’ whose costs are out of control. Well the answer to that is to cut costs. The only difference is that Democrats propose to use the savings to extend coverage to the uninsured while Republicans were hoping to use them to preserve tax cuts.

So don’t buy the “We are trying to save Medicare” argument from the Republicans, they don’t like it, never have, and don’t care in principle about cutting money going to gramma. Instead all of this, all of it is about wanting Obama and the Democrats to fail so that Republicans can make gains in the 2010 mid-terms. Pay no attention to the crocodile tears.