Scary Forecasts

Today I'm going to let you in on a little secret about forecasting health care costs: All the forecasters cheat. Cheat? Yes, cheat.

There is nothing underhanded about it. For people who read footnotes and appendices, the information is all there. But for ordinary mortals, the projections you see are not what you think they are.

But let's back up. Why do you even care about forecasts of future health care spending? The rational reasons are: (1) to figure out what path we are currently on, (2) to decide whether the path is acceptable, and (3) if it is not acceptable, to figure out how to get off of it.

Turns out, however, that the estimators at the Congressional Budget Office (CBO), the Centers for Medicare and Medicaid Services (CMS) and the Social Security/Medicare Trustees have already done tasks (1) and (2) and decided that the future is so terribly awful, they cannot possibly wait for you or anyone else to do task number (3).

So what we get out of these agencies is not a real projection of the past into the future but one that has been tempered by . . . the hope? . . . the wish? . . . the refusal to accept reality? . . . or the fanciful belief that somehow, somewhere, in some totally unexplained way we will . . . we must . . . we have to . . . get off the path we are on.

For example, the Medicare Trustees, after acknowledging that health spending has been growing at a rate that is 2 to 3 percentage points above GDP growth, assume that the growth rate will decline to the GDP growth rate over the next 75 years. The CBO, after acknowledging that health care spending per capita has been growing at a rate that is 2.1 percentage points faster than GDP per capita for the past 30 years, assumes much slower rates of growth for Medicare and Medicaid beginning in 2018 and thereafter.

Will those changes occur? Maybe. Maybe not. It still begs the question: What path are we really on? Note: even after tempering, all the projections are bad. However, a new CBO report contains an untempered projection that implies that:

• Within the next 50 years, by the time today's teenagers reach the retirement age, health care spending will crowd out every other program of the federal government.
• Well before that occurs, Medicaid spending at the state level will crowd out every other function of state government.

To avoid this unpleasant outcome and keep all other programs in place, we will have to double the size of government! A previous CBO report estimates the needed tax rates at 66% for middle-income families and 92% for high-income families – assuming no increase in taxpayer resistance.

That is the path we are on. We will not get off of it with pen and ink. We will get off of it only with real reform.

Sorry if I ruined your day,

John

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