Budget Gimmicks and Fraud

Late March heralds a new  college basketball tournament,  the first glimpse of spring, and a another round of  fraudulent federal budget accounting.

Official budget projections now assume something no one in D.C. believes–that fees paid to doctors serving Medicare patients would will drop by over 20 percent on April 1.  That drop is mandated by a formula for calculating reimbursement of fees–the “Sustainable Growth Rate” or “SGR”–enacted as part of the Balanced Budget Act of 1997.

The SGR was intended to limit the  rise in Medicare costs to the growth in national income.  That goal makes sense:  any large expense that rises each year faster than national income could eventually absorb every penny of federal revenues.  The SGR seemed to work for awhile.   In 1997-2002 spending for  Medicare Part B grew at less than its historical rate.

That progress could not last without other reforms, however.  If fees had to be raised to offset the rise in costs borne by physicians and avoid rationing, then there would be some cuts in services in order to restrain total Medicare spending.   And since  Congress was unwilling to cut services,  Medicare costs began escalating when it  suspended application of the SGR in 2003.   And rather than raise taxes to pay for that amount, Congress cut taxes that year and used debt to finance higher Medicare costs.

Congress did not, however, repeal the SGR itself.   Congressional leaders maintained the illusion that fees would drop in the future, which allowed official projections to understate the level of future borrowing.   And that brings us to the imminent budget fraud.

Leaders in both parties know it is unreasonable to lower fees paid to physicians by over 20 percent in one month.   Allowing that to happen would radicalize the medical profession and prompt some providers to drop their Medicare patients.   However, neither party wants to be blamed for increasing the rate of borrowing that already troubles many Americans.

That leads to budget tricks.  The Committee for a Responsible Budget has described how each party is trying to fabricate “savings” that would “offset” the cost of raising the  fees for Medicare above the level allowed by existing law.   Replacing one gimmick with another.   House bill increases deficits.

The Democratic alternative–winding down spending for foreign wars–is not a savings at all, since spending for those wars will decrease with the end of combat, and has nothing to do with Medicare reimbursement rates.   The GOP alternative–suspending  a portion of the Affordable Care Act for 5 years– would lower federal  spending in the short run, if enacted, though analysis reveals that those savings will not be as much as the cost of the higher Medicare fees.   Moreover,   higher Medicare fees will require extra borrowing for one simple reason:  the federal government could take spending in Iraq and Afghanistan to zero and repeal the Affordable Care Act entirely and each incremental increase in federal spending will still far exceed available tax revenues and have to be funded with debt.

There is one honest and straightforward way to pay for a change in the law preventing a draconian cut in Medicare fees:   raise the Medicare tax rate by a few tenths of one percent and tell the public why.   Those who support “entitlement reform” should welcome the opportunity to explain what Medicare service must be cut in order to avoid paying the price with higher taxes.