The Corner

Real Medicare Spending per Enrollee

The good news coming from the left these days is that we shouldn’t worry about the trillion dollar deficit and the debt. Indeed, a recent paper by the Center for Budget and Policy Priorities (CBPP) shows that the debt will stabilize, at least on paper. But built into this model are very rosy assumptions about future growth rates, and the projections don’t look past the ten year budget window — excluding, among other things, the most dramatic increases in health-care spending.  The Washington Post, rightfully so, is skeptical:

The CBPP analysis assumes steady economic growth and no war. If that’s even slightly off, debt-to-GDP could keep rising — and stick dangerously near the 90 percent mark that economists regard as a threat to sustainable economic growth. “Those who argue against a further focus on prospective deficits” based on rosy scenarios “counsel irresponsibly,” President Obama’s former Treasury secretary, Lawrence H. Summers, wrote in The Post on Inauguration Day — and we agree.

I discussed the Summers piece on the Corner last week.  

The Department of Treasury is also worried about the U.S.’s current financial path. Over at Forbes, Chris Conover makes that case:

In the words of the most recent Financial Report of the U.S. Government just released by the Department of Treasury, “current policy is unsustainable.”

But you don’t have to believe me or Treasury. Take a gander at these figures and use your own common sense. First, Medicare costs are going through the roof both because the number of beneficiaries will more than double by 2080, but more importantly because the cost per beneficiary will more than quintuple!

Conover updated one of my charts showing the increase in the number of enrollees and the increase in the cost of Medicare per enrollee between 1970 and 2080. The data is from “Medicare actuary’s alternative fiscal scenario, i.e., current policy” — I agree with Conover’s assessment that this is a ”more realistic depiction of how things will play than ‘current law’ estimates. After all, under current law, for example, Medicare would be required to slash physician fees by more than 30 percent next January.” Such cuts were scheduled in the past but never implemented, and it is pointless to assume that this time things will be different. 

He has also a good reminder about how we pay, or don’t, for this spending:

Remember that in the real world, there is no trust fund vault where Uncle Sam has safely squirreled away your lifetime payroll taxes to finance your Medicare benefits when you need them. The burden of paying for today’s Medicare beneficiaries is paid by today’s workers, through a combination of payroll taxes and general revenues.

In fact, few Americans realize that we spend more out of general tax revenues to bankroll Medicare than we do out of payroll taxes. Only one-eighth of Medicare spending in 2011 (the last year for which data have been reported) was covered by Part A, B or D premiums paid by beneficiaries.[3] Thus a crude measure of sustainability is the total amount of Medicare spending per covered worker. This measure somewhat overstates the actual burden faced per worker (since it includes the 12 percent of spending covered by beneficiary premium payments). But trends in its size are quite informative.

So, while Medicare’s aggregate cost will rise more than 10-fold by 2080, the burden per covered worker will rise “only” 8-fold given the increase in the total number working between now and then.  Even under the best possible scenario—that Obamacare works exactly as advertised—this burden will be 5.6 times greater in 2080 than in 2011.

More here. Looking at these numbers, it is hard to believe that all is well and fine in the land of government spending and debt. 

Veronique de Rugy — Veronique de Rugy is a senior research fellow at the Mercatus Center at George Mason University.

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