Pay Special Attention to the Medicare Projections in the Missing Document


Yesterday Peter Suderman noted that Medicare's chief actuary, Richard Foster, warns the public not to believe the fiscal projections in the 2011 report (PDF) from the program's trustees. In fact, the trustees themselves say "the actual future costs for Medicare are likely to exceed those shown by the current-law projections in this report." Like Foster, they note that cost savings promised by the Patient Protection and Affordable Care Act (PPACA) are highly unlikely to materialize:

The annual report to Congress on the financial status of Medicare must be based on current law. In this report, the various cost-reduction measures—most importantly the reductions in the payment rate updates for most categories of Medicare providers by the growth in economy-wide multifactor productivity—are assumed to occur in all future years, as required by the Affordable Care Act. In addition, an almost 30 percent reduction in Medicare payment rates for physician services is assumed to be implemented in 2012 as required under current law, despite the virtual certainty that Congress will override this reduction.

If the cost controls were implemented as written, Foster says, they would drive physicians and other health care providers out of the program, creating "severe problems with beneficiary access to care." Because these reforms are essentially fictional, the trustees also prepared projections based on an "illustrative alternative scenario" that assumes "the physician fee reductions are overridden" and "the productivity adjustments are gradually phased out over the 16 years starting in 2020." The report says the "differences in projected Medicare cost levels between current law and the illustrative alternative scenario" are "sizable."

How sizable? It's a bit hard to say. "I encourage readers to review the 'illustrative alternative' projections that are based on more sustainable assumptions for physician and other Medicare price updates," Foster writes, but the address he gives yields nothing but a "Page Not Found" message. (I emailed the Centers for Medicare and Medicaid Services about the missing document yesterday and have not received a reply yet; last year's illustrative alternative scenario is here.) The main report does mention that total Medicare spending, which rises from 3.6 percent of GDP in 2010 to 6.2 percent in 2085 on the assumption that PPACA achieves all its goals, hits 10.7 percent of GDP—nearly twice as much—under the more realistic alternative scenario.

It's not clear how much bigger Medicare's unfunded liabilities, which total about $25 trillion during the next 75 years in the main projection, would be under the alternative scenario. But as Thomas Saving notes in a National Center for Policy Analysis summary (PDF), there was a substantial drop in the official unfunded liabilities between 2009 ($38 trillion) and 2010 ($23 trillion), due mainly to the projected savings from PPACA. Under the alternative scenario, 40 percent of those savings are eliminated, which suggests the 75-year unfunded liabilities would be more than $30 trillion.

Look for my column about Newt Gingrich's reaction to this fiscal fiasco tomorrow.