Medicare

Medicare Fun Fact of the Day

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Via Avik Roy's new blog at Forbes:

In 1965, government experts projected that in 1990, on an inflation-adjusted basis, Medicare would cost $12 billion. In reality, Medicare in 1990 cost $107 billion. Oops.

This is what Arnold Kling means when he talks about "expert failure."

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  1. I have a methodology question. Is this an apples to apples comparison? More specifically, does the $107 billion account for just the things covered by Medicare in 1965 or does it include subsequent expansions of the program (whether it’s eligibility, additional coverage, etc.). I would guess that the estimate would still be way off, however, it wouldn’t be fair to criticize an estimate that didn’t take into account expansions that didn’t exist yet. For example, a 2000 projection of 2010 Medicare costs could be 100% accurate, but it would still be way off because it wouldn’t include the prescription drug benefit that had not yet been added to Medicare.

    If the $107B is the total Medicare program, expansions and all, then the interesting number would be what would Medicare have cost if you only included the programs that were in Medicare in 1965.

    1. however, it wouldn’t be fair to criticize an estimate that didn’t take into account expansions that didn’t exist yet.

      Why not? One of the very legit criticisms of ObamaCare is that there are proposed cuts that arent ever going to really happen, as they have always been excepted in the past.

      1. Exactly. Cost exploding because a program expanded beyond it’s initial scope IS part of the problem.

        1. Generally because the initial scope didnt “solve” the problem. So that means we didnt spend enough.

          1. Ah, the Krugman Hypothesis!

      2. Agree wrt the Obamacare cuts issue because that’s quite predictable. However, one cannot be faulted for failing to foresee adding prescription drug, expanding coverage and changing eligibility requirements well over a decade later. The former is predictable and is intentional gaming of the estimates, the latter is not being psychic. Even by excluding the stuff added to Medicare, the estimate will likely be way off. I am curious what that actual difference is.

        1. However, one cannot be faulted for failing to foresee adding prescription drug, expanding coverage and changing eligibility requirements well over a decade later.

          Yes, they can be faulted, because it is also quite predictable. Its a pattern that happens in virtually every program. The ones that dont expand scope are the unpredictable ones.

          1. In fact, I bet we can find quotes from opponents of medicare predicting this.

        2. “one cannot be faulted for failing to foresee adding prescription drug, expanding coverage and changing eligibility requirements well over a decade later.”

          Did the tooth-fairy put that buck under your pillow?
          What, exactly, was not foreseen? That growth is exactly what was predicted by those who weren’t gullible enough to swallow the propaganda.

          1. I’ll go out on a limb of a similar subject and predict the public transit systems will always be largely subsidized and that public/private sport stadium deals will cost taxpayers lots of money.

            1. “I’ll go out on a limb of a similar subject and predict the public transit systems will always be largely subsidized and that public/private sport stadium deals will cost taxpayers lots of money.”

              None of it “predicted” by those pitching the scam; all of it quite predictable by those who aren’t getting the rent.

    2. Well Part A is going to cost about $203 billion next year. And Part B is $123 billion. so that’s Medicare without Part D and Part C (managed care)

      1. What about disability coverage or late stage renal care? That was also out of the initial scope.

        1. don’t know what the original estimates were, but in 2007 it cost $410 billion

          http://www.usrds.org/2009/view/v2_11_econ.asp

        2. “What about disability coverage or late stage renal care? That was also out of the initial scope.”

          So what?

    3. I can’t say for sure, but I’ve spent a fair bit of time looking at Medicare’s history recently, and I suspect the problem is partially that when Medicare existed lots of expensive medical technologies didn’t exist. So it’s not that Medicare was limited so much that medical technology was limited. That’s one piece of the puzzle. The other big piece is utilization: More insurance means more demand for services. It also means more expansion of facilities/services/technology on the provider side (providers know they’ll have a customer base that’s capable of “paying” through Medicare). The combination is probably responsible for a big part of the growth in medical costs/spending post-1970.

      1. All of which is to say: we can’t predict the future, and Obamacare cost projections are worthless, just like Medicare cost projections from 1965. If I objected to Medicare in 1970 because CT scans would drive up the price tag, the response would have been: what is a CT scan? Now imagine all the drugs and technologies available in 2025 that do not now exist. Exactly: you can’t.

        1. Now imagine all the drugs and technologies available in 2025 that do not now exist.

          Obama has taken steps to address this concern by doing things like cutting the biologic exclusivity period. With the industry less preoccupied by thoughts of profit, it will be better able to shift workers from wasteful product development to sustainable green regulatory compliance jobs. Given a few well-targeted lawsuits, we may even be able to eliminate some of the unnecessary drugs on the market today.

          If Obama wins a second term, I’m really hopeful that he can continue the restoration of the Roosevelt presidency by bringing back polio.

          1. Indeed — if we legislate in a way that encourages diseases we can cure, soon we’ll be able to cure all the diseases.

    4. “it wouldn’t be fair to criticize an estimate that didn’t take into account expansions that didn’t exist yet.”

      WHAT!?
      You mean we should ignore the obvious and constant mission creep when we count the costs?
      Can I sell you a car for, oh, $15K and then offer you some wheels?

    5. Mo does have a point in that the estimates could have been made on a ceteris paribus basis.

      However, the entry of a government subsidy guarantees that things will no longer be as they were, even if nothing else changes, for the simple reason that cost control incentives are eliminated.

      1. Aresen|2.18.11 @ 4:43PM|#
        “Mo does have a point in that the estimates could have been made on a ceteris paribus basis.”

        Which would mean *any* claim of what they will cost is worthless.

  2. “expert failure”

    God save us from smart people.

  3. Libertarians should just shut up, go back to their basements, and listen to the experts.

    1. That’s right-I should make all health care decisions

      1. You turn me on so hard ME.

        1. Tell it to someone who cares.

  4. Suderman, these are CBO estimates. They are OFFICIAL government estimates made by top men. Stop trying to confuse the situation by evaluating their previous accuracy.

    1. Actually, they’re not CBO estimates. CBO didn’t exist until the mid 1970s. And while I certainly have issues with how the CBO’s scoring process works sometimes, the organization has actually helped keep projections somewhat in check by providing some competition to the administration’s numbers (which come from OMB).

      1. Gah, I was afraid that would be the case with the Medicare estimate but decided not to qualify the statement due to laziness. Now please stop trying to interrupt my snark with your facts.

  5. I thought at one time I read that administrative costs alone for Medicare were somthing around $20 million per day. Think about how many teachers could retire with that kind of money!

    (sic them on each other)

    1. 2 or 3, so long as they were not required to contribute any of their own money to that retirement. Are you suggesting otherwise, Hitler?

    2. From the budget:

      The FY 2012 discretionary budget request for CMS Program Management is $4.4 billion, an increase of $1.0 billion over comparably adjusted FY 2010. This request will allow CMS to continue to
      effectively administer Medicare,
      Medicaid, and the Children’s
      Health Insurance Program (CHIP), and to implement new health insurance reforms contained in the Affordable Care Act. With the funding requested
      for FY 2012, CMS will make targeted investments and increase security in information technology (IT), achieve
      optimal staffing levels, maintain
      survey frequencies, administer new laws, augment its research agenda, and administer basic operations.

      1. Oh, so only $12 million a day. TEH CHEEEP!

  6. yea but my ipod cost a lot less now than in ’65. so there

  7. I believe that the British NHS made similar cost projections when they first instituted their system, and when the costs dramatically outstripped estimations, it was hailed as a success as the real costs were proof of the popularity of the program.

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