Obamacare and the Medicare Trust Fund

US Department of Health and Human Services Secretary Kathleen Sebelius has claimed that cuts in Medicare spending help Medicare’s Trust Fund, making it easier to pay benefits in future years.[1] Yet CBO Director Douglas W. Elmendorf rejected such claims, saying that they amount to impermissible double counting.[2] The money that is saved by cuts in Medicare spending either (1) will be used to pay for health insurance for younger people or (2) will be put aside to pay Medicare benefits in the future. But you cannot use the same dollars to buy two different things. Since the Affordable Care Act explicitly uses cuts in Medicare spending to finance health insurance subsidies for young people, it does nothing to aid the future financial health of Medicare. Medicare’s chief actuary has said the same thing.[3]

What about Andy Griffith?

At a cost to the taxpayers of about $708,000, a television ad features the TV lawyer Matlock telling you how great the new health bill will be for you. Yet, a fact-check by the Annenberg Public Policy Center finds the claim not believable.[4]

Currently, about one in every four Medicare beneficiaries is enrolled in a Medicare Advantage plan. For many of them, the words in this ad ring hollow, and the promise that “benefits will remain the same” is just as fictional as the town of Mayberry was when Griffith played the local sheriff.

What about AARP?

The organization that claims to represent seniors has been fully supportive of the new law. But the interests of AARP and the interests of seniors are not the same. For example, AARP markets its own Medigap insurance, collecting more in premiums and other revenue from other commercial ventures than it collects in member dues. With fewer seniors in Medicare Advantage plans, the market for Medigap insurance will greatly expand. Moreover, AARP is getting special treatment under health reform. Specifically, AARP’s Medigap insurance enjoys several exemptions.[5]

  • Exempt from the prohibition on pre-existing condition exclusions.
  • Exempt from a $500,000 cap on executive compensation for insurance industry executives.
  • Exempt from the tax on insurance companies.
  • Exempt from a requirement imposed on Advantage plans to spend at least 85 percent of their premium dollars on medical claims.

Clearly, the Affordable Care Act creates winners and losers with respect to its impact on Medicare. Moreover, figuring out who belongs to the first category and who belongs to the second is a tricky issue that was not discussed adequately in the run-up to the law’s passage.

For more details, please see my Independent Institute book, Priceless: Curing the Healthcare Crisis.


1. Kathleen Sebelius, “Securing Medicare’s Future,” Yahoo!­News, July 29, 2010, Archived at http://www.hhs.gov/secretary/about/opeds/secmedfut.html.

2. Congressional Budget Office, “Letter to the Honorable Jeff Sessions,” January 22, 2010, http://www.cbo.gov/ftpdocs/110xx/doc11005/01-22-HI_Fund.pdf.

3. Centers for Medicare and Medicaid Service, “Estimated Financial Effects of the ‘Patient Protection and Affordable Care Act,’ as Amended.”

4. “Mayberry Misleads on Medicare,” FactCheck.org, Annenberg Public Policy Center, July 31, 2010, http://factcheck.org/2010/07/mayberry-misleads-on-medicare/.

5. Chris Jacobs, “AARP’s Healthcare Bailouts,” Republican Policy Committee, April 19, 2010, http://www.ncpa.org/pdfs/E-mail-from-Chris-Jacobs-RPC.pdf.

[Cross-posted at Psychology Today]

John C. Goodman is a Research Fellow at the Independent Institute, President of the Goodman Institute for Public Policy Research, and author of the Independent books, Priceless: Curing the Healthcare Crisis and A Better Choice: Healthcare Solutions for America.
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