Unrealistic Medicare Projections are No Joke

New on the blog!  A corny economics joke: “How many economists does it take to change a light bulb?”  Answer:  “One, if you assume a ladder.”

If you fail to see the humor, this joke reflects the sometimes dubious assumptions in economic theory when making predictions and forecasts.  The latest example is the just-released Medicare Trustees Report.   (For a summary of the Social Security/Medicare Trustees Report, click here.) Obama administration cheerleaders are ooing and awing over the projected unfunded liabilities (the difference between the payroll taxes and seniors' premiums used to fund Medicare and the benefit payouts.)  According to the 2010 report, the Medicare shortfall into the infinite horizon is expected to be just $36.6 trillion,

less than half of last years’s reported liability of $89.3 trillion! What is going on here?  Some highly skeptical assumptions based on the provisions laid out in Obamacare, that’s what.  For example:

  • It is assumed that physicians’ Medicare payments will be cut at least 30 percent (dubious assumption based on a Congress that has been unwilling to do this in the past).
  • It is also assumed that Medicare expenditures will grow at a rate of about 1.4 percent of real GDP compared to actual real GDP growth of 1.5 percent (even more dubious since M

    edicare expenditures have historically grown much faster than GDP).

One would think somebody would challenge these assumptions — and indeed they have.  For the first time in Medicare Trustees' Report history, an “Illustrative Alternative Scenario”  has been published by Medicare Actuaries.  This shorter report reveals the doubts of CMS actuaries as expressed in the following quote:

 “The Trustees Report is necessarily based on current law; as a result of questions regarding the operations of certain Medicare provisions, however, the projections shown in the report do not represent the 'best estimate' of actual future Medicare expenditures.”

In the Illustrative Alternative, Figure 4 shows how far off the new projections are from the projections in the 2010 Trustees Report.   Medicare expenditures are estimated to consume about 6.5 percent of GDP in 2080. says the 2010 Trustees Report (compared to just over 9 percent in for the same period in the 2009 Trustees Report).  When the actuaries use Medicare fee payment assumptions they believe will actually occur, the percent of GDP rises to nearly 11 percent in 2080.

To put it bluntly, the Medicare Trustees Report is ripe with…um…wildly optimistic projections (I could think of other terms, but this is a family blog).   No amount of rosy press coverage or administration cheerleading is going to hide this fact.

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Comments (1)

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  1. Bernard England says:

    Social security, medacare, medacaid, these three are thins we the people have paid for and had it not been for congress stealing these funds would be way over any expectations, but when congress started stealing theses funds, did they start to become extinct. We should charge congress and anyone that had anything to do with putting these into the general fund with grand larceny and take any monies they have to restore this fund and make HANDS OFF as it was originally supposed to be.