NCPA - National Center for Policy Analysis

President Obama's Medicare Fantasies

June 11, 2012

For years, the federally run seniors' health insurance program Medicare has been spending more than it takes in, leading to constant projections of eventual financial insolvency.  To this end, the program's Trustees recently updated their cost estimates, creating an "alternative" fiscal forecast designed to show how dire the stakes actually are, says Peter Suderman, a senior editor at Reason Magazine.

The simple summary of the Trustees' latest report is that Medicare's financial health is worse than previously believed, and that barring a miraculous decline in the growth of health spending, the program is likely to sink further into the red.

  • The Trustees report predicted that the program's trust fund would hit insolvency by 2024, but they encourage readers to accept this estimate cautiously -- it assumes that many current-law provisions will remain in place that are unlikely to do so.
  • For instance, this approximation assumes the implementation of long-scheduled physician payment reductions, productivity improvements under the Affordable Care Act (ACA), and spending caps imposed by the ACA's cost-control board.
  • Many of these assumptions are unlikely or overly generous; when they are removed, Medicare spending's future dominance over the economy becomes clear.
  • Medicare costs would rise to 6.5 percent of gross domestic product in 2040 and 7.8 percent in 2085, and this even allows for the unlikely continuation of ACA cost-saving measures.

Nevertheless, President Obama maintains that he is dedicated to the Medicare program and shoring up its shoddy finances.  In this regard, he has been running ads touting his antifraud initiatives.

  • By cracking down on fraud, the Obama administration claims to have saved $4 billion.
  • Bear in mind that estimates suggest that health fraud in government programs exceeds $60 billion a year.
  • Even the Government Accountability Office found that the program wastes $48 billion annually on "improper payments" to Medicare providers.

Given that the program is expected to cost over $1 trillion each year within a decade, it seems less than impressive that the president's efforts are isolated to relatively miniscule savings of $4 billion.  True effort at saving the program and securitizing its long-term solvency would take the form of long-term, massive savings.

Source: Peter Suderman, "President Obama's Medicare Fantasies," Reason Magazine, May 30, 2012. John D. Shatto M. Kent Clemens, "Projected Medicare Expenditures under Illustrative Scenarios with Alternative Payment Updates to Medicare Providers," Centers for Medicare and Medicaid Services, May 18, 2012.

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