Questions and Observations

You remember last week when the supposed “good news” was released – Social Security wasn’t in as dire shape as we’d been told and Medicare was going to be fine too?  Yeah, since ObamaCare passed and the doc fix was sure to be implemented, not to mention the half trillion in cuts to Medicare, why we were on the road not only to solvency but to deficit reduction.

And the yearly bit of political theater played out as planned:

The normal process with the annual Trustees’ Reports is for the Trustees to develop and publish the best available projections for the future finances of Social Security and Medicare. The respective Social Security and Medicare actuaries then sign a pro forma blessing of those projections, which is tacked to the back of the report when released to the public.

“Pro forma” is the key.  Usually, whether they believe the rosy projections or not, their signatures appear on the report.

But this year, one of them just couldn’t do it in good conscience.  The Medicare Chief Actuary just couldn’t sign his name to the fiction without adding a memo of his own.

The actuary’s alternative memo explains that “the projections in the report do not represent the ‘best estimate’ of actual future Medicare expenditures.” Worse than that, they are not even in the ballpark of reasonability. The official 2010 Trustees’ Report tells us that total Medicare expenses will be total 6.37% of GDP by 2080. The CMS actuary’s alternative memorandum explains that 10.70% of GDP is a more reasonable estimate for that year – though one that is roughly 68% higher.

The two reasons the actuary cites are the “doc fix” – a formula the actuary describes as "clearly unworkable and almost certain to be overridden by Congress” (both the Obama administration and leaders in Congress are on record opposing them – yet there they are in the report on the “plus” side of the ledger).

The other assumption the actuary dismisses as unrealistic is the assumption that future program cost will be contained by “downward adjustments in annual price updates reflecting in turn the assumption that health service productivity growth will parallel “economy-wide productivity.”  The actuary flatly states there is no evidence to support this assumption and, on the contrary, much to call it deeply into question.

E21 notes:

This is a key point; the glowingly optimistic projections in the official Trustees’ Report assume that we as a nation will be content to have 40% of our medical facilities go under within the next 40 years, and that we will happily accept these severe constraints upon beneficiaries’ access to health care. If that is not in fact the societal will after the enactment of health care reform, then the official cost estimates should be tossed into the nearest receptacle.

Bad though all of this is, none of it is actually the worst gimmick in the official report’s advertised improvement in Medicare solvency. That involves the double-counting of Medicare savings. Earlier this year, Congress passed a health care bill containing various new Medicare taxes and constraints on program expenditures. Such savings are assumed in the official report to extend the solvency of Medicare. But Congress chose instead to spend the savings on a new health care entitlement.

Remember, the Trustees’ report, like CBO projections, must be based on current law.  So they must include the assumptions contained within those laws.  What the actuary says very bluntly is the assumptions are a fantasy and that the reality of the situation is far from that included in the report.

“(T)he financial projections shown in this report for Medicare do not represent a reasonable expectation for actual program operations in either the short range. . . or the long range. . . . I encourage readers to review the ‘illustrative alternative’ projections that are based on more sustainable assumptions for physician and other Medicare price updates.

You can read that “illustrative alternative” here.  Needless to say the Trustees’ report, as published, belongs on the same shelf in your library as “The Wizard of Oz.”

~McQ