Senate Majority Leader Harry Reid proudly declares that the Senate health reform bill "saves money and saves Medicare," reducing the budget deficit by $132 billion over 10 years, 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 calls 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 deductible. Since health premiums are non-taxable, reducing premiums would increase employees' taxable wages, boosting Social Security revenues by $52 billion over 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 revenues 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 asked, "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 a lawyer, Reid assured us, 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 are also 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, CBO writes, "the majority of the HI 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'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 on them on other things.
"The key point," the CBO memo says about the Reid Senate health bill, "is that the savings to the HI trust fund ... would be received by the government only once, so they cannot be set aside to pay for future Medicare spending and, at the same time, pay for current spending on other parts of the legislation or on other programs. . . . To describe the full amount of HI trust fund savings as both improving the government's ability to pay future Medicare benefits and financing new spending outside of Medicare would essentially double-count a large share of those savings and thus overstate the improvement in the government's fiscal position."
Medicare's chief actuary Rick Foster similarly said 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 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.
This bookkeeping allows Democrats to devote around one-third of the $350 billion bill to reducing the budget deficit, thereby claiming a mantle of fiscal responsibility, while spending the majority on expanded coverage for non-retirees.
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 made clear: It borrows far more than it saves and it weakens the nation's fiscal position at a time when it is already under threat.
Dodgy accounting is hardly the only sin in Reid's Senate health plan, but it hides a multitude of other ones.
Andrew G. Biggs is a resident scholar at AEI.