Andrew Biggs deconstructs the budgetary assumptions of the Obama budget proposal and finds that the White House has ignored the findings of the Medicare trustees, perhaps the first time an administration has contradicted them. The trustees have found that the aging population of the US creates most of the inflationary pressure on future Medicare costs, a finding that has been corroborated by the Congressional Budget Office as well. However, Obama’s budget presumes that the biggest pressure on health-care costs will be “excess cost growth,” which they claim will be solved by ObamaCare:
The Obama administration’s fiscal year 2011 budget continues a pattern of ignoring independent analysis and rigging economic assumptions to meet political goals. For the first time by any administration in memory, the Obama budget forecast rejects the Medicare Trustees’ projections for long-run healthcare cost growth. The reason: the Trustees’ projections undercut the administration’s narrative that increased federal control over private sector healthcare could painlessly reduce Medicare and Medicaid costs. The Obama budget instead assumes long-term health cost growth at twice the rate projected by the Trustees.
The White House’s assumptions are factually implausible. Worse, they threaten to politicize the Social Security and Medicare Trustees, whose process for estimating entitlement costs has until now stood out for its lack of political influence. …
The rate of health cost growth per beneficiary combines with population aging, which swells the number of beneficiaries, to raise overall Social Security, Medicare, and Medicaid spending. The Medicare Trustees have for years projected that per capita health costs will grow around 1 percent faster than gross domestic product. In health experts’ lexicon, “excess cost growth” will equal “GDP plus 1 percent.”
The 2011 Obama budget, by contrast, assumes per capita health costs will grow at GDP plus 2 percent, double the Trustees’ rate. The effects of this change are staggering: the administration’s 2010 budget, which followed the Trustees assumptions, projected Medicare costs of 9.6 percent of GDP by 2080. The 2011 budget, which uses White House assumptions, projects Medicare will consume 22 percent of GDP by 2085.
Why make that exponentially-significant assumption? If the growth really comes from “excess cost,” Democrats can use it as a reason to place the health-care sector under heavy regulation. If the growth mainly comes from aging, the real solution would be to further restrict eligibility in order to compensate for longer life spans and smaller contributions from non-retirees to entitlement costs.
Biggs shows two charts to show the impact of the White House decision to jettison the trustees’ analysis. The first comes from the CBO:
The next shows the cost curve under White House assumptions, although do note the difference in the timelines:
Just looking at the aging effect in the second chart shows how far off the OMB assumptions get. The aging population won’t stabilize into an almost flat line for 50 years past 2032; lifespans will continue to increase and our rate of reproduction almost guarantees that our population will skew older as time moves forward. Aging has driven our entitlement programs to near disaster, as it has certainly done with Social Security, by refusing to index eligibility to lengthening life spans, or as an alternative, to means.
By refusing to accept the nonpartisan analysis of the Medicare trustees and of the CBO, the White House has politicized these projections as a means to push Congress into accepting a very ill-considered remedy for an entirely wrong diagnosis.
Be sure to read all of Biggs’ analysis, and while you’re at it, also read E21’s analysis of the “doc fix” and its impact on these accelerating federal costs for health care.