President Obama's Medicare Fantasies

Medicare is headed for fiscal ruin, and a new report shows that the administration's reforms aren't likely to help.


How bad is Medicare's fiscal picture? So bad that the program's Trustees are warning that the bad news they issued earlier this year about the program's finances is actually the upbeat scenario—and have once again created an "alternative" fiscal projection designed to show how dire the stakes actually are.

The federally run seniors' health insurance program will no doubt loom large in this year's presidential election. President Barack Obama is already running ads touting his administration's commitment to preserving and strengthening the program's finances. But what his ads don't mention is that the program's Trustees have made it abundantly clear that Obama's Medicare reforms are likely fantasies—and that the program is headed for fiscal ruin even if those fantasies miraculously come true.

The Trustees report predicted that the program's trust fund would hit insolvency by 2024. But that report necessarily assumes that various savings mechanisms and payment reductions called for by current law will actually occur—an assumption that the Trustees argue isn't all that likely. "In view of the very substantial uncertainty associated with possible changes to Medicare," the alternative scenario report notes, "readers should interpret the current-law Medicare projections cautiously". 

At best, the Trustees suggest, the savings in the 2010 health care law are aspirational: "The current-law projections should not be interpreted as the most likely expectation of actual Medicare financial operations in the future but rather as illustrations of the very favorable impact of permanently slower growth in health care costs, if such slower growth can be achieved."

The Trustees summarize the new report's findings by noting that they are intended to "help to quantify and underscore the likely understatement of the current-law projections in the 2012 Trustees Report." Jason Schafrin, a Ph.D. health economist and consultant summarizes it more succinctly: "We're fucked."

The gap between the current law projection and the alternative is a result of wishful thinking: Current law is filled with savings that are implausible at best. The alternative scenario assumes that neither long scheduled physician payment reductions, productivity improvements assumed into ObamaCare's Medicare savings, nor spending caps imposed by the health care law's cost-control board will stick. The resulting outlook is bleak: "Medicare costs would rise to 6.5 percent of GDP in 2040 and 7.8 percent in 2085. Under the full scenario, in which adherence to the ACA cost-saving measures also erodes, costs would rise to 7.0 percent of GDP in 2040 and 10.3 percent in 2085."

Congress simply doesn't stick to scheduled health provider payment reductions, and that makes it harder to stay on budget. In 2011, for example, the Trustees' current-law prediction for Medicare part B expenditures in 2012 was $220 billion. The actual figure turned out to be about $247 billion. Congress once again passed a temporary override to a scheduled cut to Medicare's physician reimbursements, adding almost $27 billion to the annual bill. Meanwhile, the report notes that "measured productivity gains have generally been quite small," which suggests that the productivity improvements built into ObamaCare—and the savings they supposedly bring—may be overly hopeful.

Yet President Obama is trying to assure seniors that he's protecting the program by running ads touting his anti-fraud initiatives. "Medicare is personal," the ad says. "And to a president raised by his grandparents, it's personal too." By cracking down on fraud within the program, the Obama administration claims to have saved $4 billion.

With savings that small, the ad might as well have featured Obama searching his couch cushions for change to shore up the program's finances. Never mind that estimates suggest that health fraud in government programs exceeds $60 billion a year, or that the Government Accountability Office found that the program wastes $48 billion annually on "improper payments" to Medicare providers. Forget that the administration has already put on hold at least one component of its anti-fraud initiative after complaints from health providers. The scale of the program is so huge—within a decade Medicare spending is expected to cost over $1 trillion each year—that even the billion dollar savings Obama touts are essentially meaningless. This is like a field commander bragging about a new way to defend against mosquito bites while his troops are taking mortar fire.

Obama's new ad insists the president has a "personal commitment" to preserving the program. But the stark alternative scenario report from the program's Trustees reveals how hollow that commitment really is.

Peter Suderman is a senior editor at Reason magazine.


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    1. Hmm, maybe anono-bot is onto something, perhaps the internets are a potential means to shore up Medicare.

      1. Anono-bots are registering and signing in? Seems like a lot of work to target a small audience…

        1. The bot operator prolly gets paid per ad placed.

  2. How about we end these programs and let people pay for their own medical care?

    1. But… but.. social contract… safety net… granny… dog food.

    2. Have you thought about the job losses which would happen if all those middlepersons were cut out from the loop?

      The GDP would drop a couple of percentage points, too…

    3. This only proves you know nothing about government health care. The only way to save money is to make the programs bigger and bigger.

    4. Or if you’re going to keep them around, means test them. Same with social security. Sticking young workers with a bill that crowds out their own savings so that a retiree with a million dollar 401(k) can get subsidized Viagra seems pretty stupid even from a statist perspective.

      1. Means testing and, slowly, increase the age at which you can apply for it.

        Since this pretty much always hurts black people the most, the anti-racist way to adjust the age is by focusing on changes in black life expectancy and retirement age.

  3. duled physician payment reductions, productivity improvements assumed into ObamaCare’s Medicare savings, nor spending caps imposed by the health care law’s cost-control board will stick. The resulting outlook is bleak: “Medicare costs would rise to 6.5 percent of GDP in 2040 and 7.8 percent in 2085. Under the full scenario, in which adherence to the ACA cost-saving measures also erodes, costs would rise to 7.0 percent of GDP in 2040 and 10.3 percent in 2085.

  4. You fools don’t get it.
    Step 1: Shift costs of healthcare for medicare patients to non MC patients by paying Dr.s below cost
    Step 2: Watch as the compensating cost on non MC costs rise, and blame it on the free market!
    Step 3: Use that rise in costs as an excuse to socialize the whole thing!
    Step 4: Utopia!

  5. I know how he feels if I lose my job my insurance is gone too. But people should know about “Penny Health” and also if you dont have means of paying for treatment the hospital will file the form and get reimbursed by medicaid.

  6. I just read online about Man robs bank to get medical care in jail and presented the view that if the United States had a health-care system which offered people more government support, he wouldn’t have had to make the choice he did but wish somebody told him about “Penny Health” hey i am just trying to find a solution

  7. President Obama have the main strong points in the health care and now he is raising his points again in the elections.

  8. this year about the program’s…..c-3_6.html finances is actually the upbeat scenario?and have once again created an “alternative” fiscal projection designed to show how dire the stakes actually are.

  9. President Obama’s landmark health care initiative will actually add more than $340 billion to the nation’s budget woes over the next decade, according to a new study (
    Medicare is financed in part through a trust fund that receives revenue from payroll taxes.
    Before Obama’s health care act passed, the trust fund was projected to be drained by 2017 (later updated to 2016).
    Enter the health care law, which provides about $575 billion in Medicare savings (enough to automatically extend the life of the trust fund through 2029) and avoid a sharp cut in benefits.
    But in cost estimates by the nonpartisan Congressional Budget Office (CBO), those savings also offset a dramatic expansion of Medicaid under the law, as well as new subsidies for uninsured people to purchase coverage.
    The numbers have been updated through 2021 and subtract savings that would have come from another provision of the law: the CLASS Act, a long-term care program that was supposed to have generated as much as $86 billion in new revenue through 2021 but has since been abandoned by the administration.

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