Recently the Congressional Budget Office released 10-year projections that reduced the projected amount of government spending on Medicare by ~$500 billion over similar numbers in 2010. Note that this reduction is over and beyond both (1) the cuts forced by the recent sequestration, and (2) future SGR formula cuts in physician fees (the Medicare program has a formula which is supposed to automatically cut physician fees as the federal cost of Medicare increases, but Congress routinely passes legislation to cancel these).
This projected reduction is important for the budget debate because the Simpson-Bowles commission–often cited as the starting porting for plans that deal with the federal deficit–used the 2010 numbers, and as a result recommended as part of its its budget proposal a total of $341 billion in cuts in Medicare. Now, I can see three different reactions to the CBO data:
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Their projections are flat-out wrong. Now granted, I have a lot of skepticism when it comes to 10-year economic projects. But if they’re rejected now, why are the 2010 numbers any better?
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The projections may be correct now, but that’s because of our poor economy; expect them to go up once the recovery takes hold. That is certainly a part of it–though traditionally, Medicare spending is less affected by economic trends than private health care. And there have been cost slowdowns before (particularly in the late '90s) followed by a jump (in the 2000’s thankslargely to the introduction of Medicare Part D). But many who’ve studied the issue argue the trend is structural and long-term. Whether that’s because of Obamacare, new private market incentives, or a combination is debatable, but per the NY Times article the consensus is that more than just a weak economy is at work in the reduction.
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Even if I accept that the data represents a long-term trend, it doesn’t mean there is no budget problem. I agree, but it does mean the priorities of the deficit discussion should be changed, and that we have more time to deal with it prudently. Note that both the Republicans and President Obama have offered proposals to cut Medicare, they would just prefer the other party take the political hit for it (or, to be more charitable than they deserve, share the voters’ blame equally). Moreover, the steady sequence of budget/fiscal crises engineered by Congress promotes (IMO) a false sense of public urgency on this issue. At the very least, this new data raises serious questions regarding this apparent consensus on urgent Medicare cuts.
My conclusion is, there is a serious disconnect between the assumptions driving the deficit discussion and the facts on the ground, particularly regarding the future costs of Medicare. So I throw it open to discussion by the board…does this new data really undermine the effort to reform Medicare (read: cut cut cut) as part of the deficit deal, or not?