Making a Deposit into a Congressional Bank Account

While the Senate Finance Committee’s recently-approved Modernizing and Ensuring PBM Accountability Act is focused on tighter regulation of pharmaceutical benefit managers, it also includes an unrelated provision directing resources to a mysterious and mostly overlooked subaccount within Medicare called the Medicare Improvement Fund (MIF). While the name suggests the fund plays an important supporting role in updating the program, it has never been used this way. Instead, it exists only to give the relevant House and Senate committees additional budgetary flexibility.

Section 8 of the committee-approved bill deposits $1.726 billion in new spending authority into the MIF in 2028 (there is also a Medicaid Improvement Fund, but it is not affected by the current PBM bill).

The Congressional Budget Office released a preliminary cost estimate for the unamended version of the committee legislation showing that the spending from the MIF, expected over the period 2028 to 2032, will exactly offset the ten-year savings from the bill’s other provisions. As committee-approved amendments are estimated, it is possible that the amounts set aside in the MIF will have to be reduced to ensure the bill does not increase future deficits.

Originally enacted in a June 2008 supplemental appropriations bill, the notional purpose of the MIF is to give the Centers for Medicare and Medicaid Services (CMS) funding to “make improvements” in the operations of the program’s fee-for-service insurance. The law provides no real guidance beyond this broad mandate.

The first deposit of $2.22 billion was scheduled for 2014—six years after the law authorizing it was enacted. Shortly thereafter, an additional $19.9 billion was set aside. The pattern was set. Over the past fifteen years, as documented by CBO, the account has been amended by Congress twenty-nine times. However, at no point since it was created has it ever been used for its stated statutory purpose. Indeed, no funds have ever been spent from it. Congress just keeps putting funds into the account and then, in later legislation, takes it away, as a way of financing other priorities, some of which have been Medicare changes.

In other words, the account is working as intended. It was devised as a convenient mechanism for “parking” excess savings “created” by the House Ways and Means and Senate Finance Committees from which they could later make withdrawals when looking to offset the costs of other bills in their jurisdictions.  

That proved to be particularly important in 2010 when Congress was debating the Affordable Care Act (ACA). A major point of contention during those many months of legislative consideration was whether the ACA would be fully offset. In the final bill, the “cut” that was assigned to the Medicare Improvement Fund provided $20.7 billion of savings in CBO’s official cost estimate. That helped the bill get across the finish line.

One reason the committees have resorted to this practice is that other possible mechanisms may not be as reliable. Within a Congress, the budget rules, based on allocations, could be crafted to allow a committee to use savings from one measure to offset the costs of another, even when floor consideration of the distinct bills is separated by many months. The problem is that, over the course of multiple years, internal congressional scorecards are less reliable as the budget rules change frequently and most especially when a new Congress convenes at the beginning of its two-year cycle.

The Medicare Improvement Fund does not suffer from this drawback because it was written into permanent law. When the committees provide the account with new spending authority, they can reasonably expect that at a later date, a cut to that authority will be credited by CBO as a valid offset.

In the current context, it is possible that, to accommodate amendments, the deposits into the MIF in the initial version of the bill will need to be reduced or possibly eliminated altogether as the measures move from the committee to floor consideration. However, if any funds are not spent after passage is assured, it seems likely that the excess will go into it and then be tapped later as an offset for future legislation.

The MIF’s unusual history raises several questions, including how it is possible to assume it will operate in the future like other federal accounts even though it has existed since 2008 and never made an expenditure. As explained by CBO, the agency has no real choice but to assume CMS will use the fund for the purposes stated in the law, and within a certain reasonable period. Of course, that is what the committees that created it are counting on, and why they continue to see it as a useful device.