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Liberals are now arguing Medicare is no longer a fiscal problem. They’re wrong

Image credit: Leader Nancy Pelosi (Flickr) (CC BY 2.0)

Image credit: Leader Nancy Pelosi (Flickr) (CC BY 2.0)

Did you hear the fantastic news about Medicare? Like many Americans, you’ve probably been laboring under the delusion that the social insurance program was posing some sort of long-term threat to the fiscal stability of the US government. Maybe you heard that it is gobbling up a greater and greater share of the federal budget. Maybe you’ve even seen a chart something like this one from the Congressional Budget Office:

Well, relax. Turns out this whole “Medicare is going to bankrupt America” thing is a big nothingburger. At least, that’s what many liberals are saying these days. They argue that the Congressional Budget Office is wildly overestimating future health care cost inflation. And if health care costs rise more slowly than what the CBO forecasts they will, Medicare spending will rise much more slowly. Here is blogger Yves Smith over at Naked Capitalism:

A remarkably important and persuasive paper that calls into question the need for “reforming” Medicare has not gotten the attention it warrants. “An Examination of Health-Spending Growth In The United States: Past Trends And Future Prospects” by Glenn Follette and Louise Sheiner looks at the model used by the Congressional Budgetary Office to estimate long term health care cost increases. Follette is chief of the Fed’s fiscal analysis section. Sheiner, a fellow member of that group, has worked for both the Treasury and the Council of Economic Advisers previously. …The fundamental beef of Follette and Sheiner with the CBO model is that it naively assumes past growth in health care spending as the basis for its long-term projections. The result is that it shows that trees will grow to the sky.  …. CBO’s performance on this front looks like malpractice.

 

The Naked Capitalism post has spread far and wide across the liberal blogosphere and is now part of the regular set of talking points offered by left-of-center pundits — as I found out last night on CNBC’s Kudlow Report when debating economist Dean Baker. Baker elaborated in a recent op-ed:

Recently a paper from the Federal Reserve Board documented this argument in considerable detail.

… While the CBO projections assume that age-adjusted health-care costs rise considerably more rapidly than per capita income, in the last four years they have been roughly keeping pace with per capita income.

In fact, in the last year, nominal spending on health-care services, the sector that comprises almost two-thirds of health-care costs, rose by just 1.7 percent. This is far below the rate of nominal GDP growth over this period, which was more than 4.0 percent. While at least some of this slowing in health-care costs is undoubtedly due to the downturn, it is hard to believe that it is not at least partially attributable to a slower underlying rate of health-care cost growth.

CBO and other budget forecasters can ignore economic reality for a period of time (they ignored the housing bubble until after its collapse wrecked the economy), but if it continues, at some point they will have to incorporate the trend of slower health-care cost growth into their projections. When this happens, the really scary long-term deficit numbers will disappear

Well, here’s your trouble: That paper seems to have been written in 2008. If so, it fails to take into account recent CBO work on the subject of health care inflation. Much of the debate concerns how much the the annual growth rate of nominal Medicare spending per beneficiary – adjusted for demographic characteristics of the relevant populations — exceeds the annual growth rate of potential gross domestic product per capita, on average. Follette and Sheiner and Baker and Smith knock the CBO for failing, as Baker says, “to incorporate the trend of slower health-care cost growth into their projections.”

But I’m not sure that is correct. Since that paper was written, CBO has been lowering its estimates of  excess cost growth. While from 1975-2010, excess cost growth has averaged 2.1% a year, CBO now uses 1.6% as its “anchor” to take into account the recent slowing of costs. And in its long-term budget forecast, the CBO directly addresses the issue:

Even without policy changes, though, actual spending for health care could be much lower or much higher than the figures contained in CBO’s and other analysts’ projections. For comparison purposes, CBO projected federal spending for Medicare, Medicaid, CHIP, and the exchange subsidies using varying assumptions about excess cost growth after 2022 under the extended alternative fiscal scenario.

For example, a projection in which excess cost growth is held constant at zero is useful because it isolates the effects that the aging of the population and policy changes have on spending. In that case, the federal government’s spending for major health care programs would increase from 5.4 percent of GDP in 2012 to 8.6 percent by 2037, rather than to the 10.4 percent in the path described above. If, instead, excess cost growth for those programs equaled 2.0 percentage points starting in 2022 and continuing indefinitely, federal spending for major health care programs would grow to 11.3 percent of GDP by 2037.

 

The adjusted CBO forecast still clearly shows Medicare posing big problems for the federal budget. Of course, we could bet, as some liberals desire, that the recent decline in health inflation is a permanent fixture in the economy. AEI’s J.D. Kleinke warns against doing so:

What is really behind this economic normalization of health spending? What has occurred during the past decade, absent any government “overhauls” of the system? Three things: (1) medicine has slowly, cumulatively been getting better; (2) insurers have been getting smarter about benefit design and consumer behavior; and (3) health care consumers have been watching their once blank-check insurance coverage morph into tough, cost-sharing plans – with economic consequences attached to every choice.

The only bad news is that this slow, steady correction over the past decade is too slow, not nearly deep enough, and does not address the real drivers of waste in health care: the juggernaut of administrative madness that is the employer-mediated, hyper-regulated, fragmented, localized health insurance colossus – the same wreck into which the Obama Administration wants to jam another 30 million people.

Yes, Medicare still looks to be a fiscal problem and likely will continue to be thanks to President Obama’s health care reform law.

17 thoughts on “Liberals are now arguing Medicare is no longer a fiscal problem. They’re wrong

  1. there is no “Medicare”. There are 4 of them – and each one has it’s own “trust fund” and each one has it’s own financial issues.

    It helps to understand the 4 different Medicares and what each one does and what each one actually costs to subsidize.

    Even if health care costs are reined in – Medicare still has a demographic problem and a more fundamental problem in premium prices.

    the most important thing that most people are not aware of – oblivious to is:

    * Medicare part A (hospitalization) is prepaid with payroll taxes and will be in deficit if not already but no where near the scope and scale of the other 3 Medicares.

    * Medicare Part B – for providers is totally voluntary and totally NO pre-paid from payroll taxes and the only “entitlement” is that people 65 and older are “entitled” to buy it – not get it free.

    the bad news is that we sell it for about $100 a month when it is costing about $400 a month.

    Part C is gap coverage which is also subsidized and basically allows seniors to pay a small fee to get rid of the 20% co-pay of original Medicare (Part B).

    Part D is subsidized prescription drug coverage.

    Part C and D both were supported by the GOP and C&D subsidies exceed the subsidy for Part B.

    All the government needs to really do to fix “Medicare” is to increase the premiums especially for the folks who pay $100 a month – and own two homes – a primary residence and a vacation home – because even though Medicare premium prices are means-tested – it is on income not assets and the income window is very generous – someone can have over 85K in annual retirement income and still pay only 100 a month.

    Medicare can be fairly easily fixed just by charging more for premiums.

    It does not need to be wiped out, repealed or even converted to a voucher system because Part B,C,D are entirely voluntary fee-for-service plans and the premiums can and should be increased.

  2. there is no “Medicare”. There are 4 of them – and each one has it’s own “trust fund” and each one has it’s own financial issues“…

    There is no reality… There are four or more of them right larry g?

    I mean you’re absolutely right (I can’t believe I’m saying this!)…

    The reality for us for instance is going to be decidedly different than for a congress person on Capitol Hill…

    Apparently the government in the medical market place as the overriding flaw isn’t in any of those realities…

    • In my view, you cannot argue intelligently about Medicare if you have no idea what it really is or is not – but that don’t keep folks from doing it.

      here’s a little two-pager to get started.

      • FYI for purposes of information you may want to update your info due to ObamaCare: MEDICARE SPENDING AND FINANCING Fact Sheet November 2012

        In my view, you cannot argue intelligently about Medicare if you have no idea what it really is or is not – but that don’t keep folks from doing it“…

        Well yeah I guess one could make that argument…

        Still the real problem as it has always been is government in the market place…

        On YouTube: John Stossel – Government Inc: Post Office, Amtrack, Interstates, Defense, & Police Unions 6/28/12

        • The most important misconception about Medicare is that (with the exception of Part A Hospitalization) it is not free.

          The only thing seniors are “entitled” to is the ability to buy it.

          it suffers from two problems:

          1. – the govt sells it for 25% of what it costs overall and even though it is means tested – its only by income and the $100 lowest premium allows a retirement income of up to 85K.

          2. – the Republicans not only voted for subsidized prescription drug coverage but subsidized “Gap” coverage for the 20% co-pay that original Medicare required.
          That co-pay required the insured to have some skin in the costs but when the gap coverage was provided – AND subsidized, it took away people’s incentive to not overuse benefits.

          Medicare is a solvable problem not without much complaining but the govt is, as I said, selling insurance, not giving guaranteed health care.

          this problem is easily solved compared to MedicAid and DOD.

          the solutions to these issues require much more than sound-bite propaganda.

          • The most important misconception about Medicare is that (with the exception of Part A Hospitalization) it is not free“…

            Wrong larry g, if the person whether they’re a senior citizen or not can’t or won’t pony up the bill its free and though it may not be medicare per se what’s the difference in real world terms?

            Medicare is a solvable problem not without much complaining but the govt is, as I said, selling insurance, not giving guaranteed health care“…

            It sure is, get rid of it…

          • re: ” if the person whether they’re a senior citizen or not can’t or won’t pony up the bill its free”

            not true.

            Medicare does not cover, optical, hearing aids, long term care, and a variety of other things and no … if Medicare does not pay – they do not get MedicAid UNLESS they meet poverty guidelines.

            If they have more than 24K in income – like a social security pension – they will not qualify for MedicAid.

            again – the biggest problem here is ignorance of what the entitlements pay for – and not.

          • Medicare does not cover, optical, hearing aids, long term care, and a variety of other things and no … if Medicare does not pay – they do not get MedicAid UNLESS they meet poverty guidelines“…

            larry g you’re splitting hairs over the whole of the ‘pandering to parasites‘ programs…

          • re: ” you’re splitting hairs over the whole of the ‘pandering to parasites‘ programs…”

            I’d support doing to Medicare Part B what was done to Part A – i.e. payroll taxes

            and I’d require Prescription drugs and gap/advantage programs to be self-supporting.

            but I do not support changes that are just not even in the realm of possibility. We need changes – not ideological rhetoric.

          • larry g says: “I’d support doing to Medicare Part B what was done to Part A – i.e. payroll taxes“…

            Well larry g if want it you should pay for it…

          • re: if you want it

            well, here’s the deal.

            you have two choices:

            1. – get folks to prepay it with their own money
            2. – provide them with health care if they don’t

            yeah.. I know you have a 3rd option but it’s totally a non-starter in the real world unless you’re talking about 3rd world countries.

            so…no.. people won’t buy your “return to the 3rd world” economics……for this country…

            you’re voted down.. about 85 to one… go sulk.

          • larry g says: “you have two choices:

            1. – get folks to prepay it with their own money
            2. – provide them with health care if they don’t
            “…

            Ahhh, now that’s funny…

            You libtards come up with some seriously stupid ideas but you don’t want to pay for them yourselves, you want someone else to pay for it…

            yeah.. I know you have a 3rd option but it’s totally a non-starter in the real world unless you’re talking about 3rd world countries“…

            Well in your socialist fairy land I guess it wouldn’t work…

            so…no.. people won’t buy your “return to the 3rd world” economics……for this country“…

            Ahhh yes, well since you and the rest of the parasites voted yourman-crush‘ back into office I guess we can just kick back and watch the US of A morph into another Zimbabwe…

            Cool!

    • It’s not just that Americans will get treatment rather than being left on the sidewalk to die, Juandos. It’s also how they get treatment. The folks who have no coverage become charity cases at the hospitals where they turn up, and cost inflators for the next guy who walks in.

      And that is not the worst of it, Are you sitting down Juandos? Only the govt has the clout to provide the necessary answer in rational affordable healthcare. That answer would be ‘no.’ As in, no, your mother can’t stay in the hospital because there is nothing more we can do. We’ll show you how to work the morphine drip. We’ll call the ambulance. I am sure she’d rather die at home. If you think this is trivial, google “medicare last month life.”
      Hospitals can’t make this answer stick, Doctors can’t. Insurers can’t. It takes an entity that is bigger, more impersonal and more hated even than an insurance company. Nominations?

      • Insurance companies have no trouble do this to people under 65 though. Ever seen glass jars in 7-11s for poor “johnny” who needs some operation or will die?

        Of course, when the govt does the same thing to Granny, it’s called a “death panel”.

        the truth is that no matter who the insurer is – they cannot and will not provide unlimited benefits no matter what.

        that’s the reality.

        I think it’s pretty silly to pretend that only the govt has “death” panels. Even MedicAid/Charity care has limits on how much they’ll pay even for things like dialysis and cancer drugs.

      • todd claims: “It’s also how they get treatment. The folks who have no coverage become charity cases at the hospitals where they turn up, and cost inflators for the next guy who walks in“…

        Funny how the people who think this socialist extortion racket called the Affordable Care Act is such a good deal aren’t willing to pony up their own money to make a go of it but also insist that everyone else following this bizzare but thoroughly ridiculous line of reasoning…

        Only the govt has the clout to provide the necessary answer in rational affordable healthcare“…

        ROFLMAO!

        What can one say to something like that?

        Apparently free will and the freedom to make choices are no longer with us…

        We’ll show you how to work the morphine drip. We’ll call the ambulance. I am sure she’d rather die at home. If you think this is trivial, google “medicare last month life.”“…

        I’m sure there’s millions of sob stories out there todd but so what?

        Is that rationale enough in your value system that makes it OK for the federal government to work it magic via the ‘wealth transfer‘ scams it has up its collective sleeve?

        I’ve yet to see any logical rationale for the federal government to be in the health care business…

        Why do you want to cede control over your life to the federal government?

        It takes an entity that is bigger, more impersonal and more hated even than an insurance company“…

        I don’t hate the insurance companies, I understand what they’re in business for…

        Nominations?“…

        Hmmm, does ‘personal responsibility‘ ring any bells?

  3. Political solutions all. I’ve commented many times – and it never makes a difference – about how we need to attack the main problems that medicare now is forced to pay for by SOLVING the problem. That will require getting the research out of universities, where they keep their failures secret, and their successes even more secret, and starting a Manhattan Project to solve adult wasting, dementia, kidney disease, and diabetes. Those are the big four, and they account for almost 50% of medicare and medicaid. You can say its pie in the sky, but we are close on many of these fronts. It won’t get any better with the medical science tax – a tax that I think was deliberately instituted to slow down research.

    Demon Rats are into population control. We need to be into humanity, and argue our case. By blabbing on about this tax, or that incentive, or that drug plan, we play into their hands. Hope sells better than stinginess, and its a lot smarter.

    Jim – why don’t you LISTEN?

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