Peter Orszag, the former OMB Director for President Obama, and Loren Adler, the Research Director at the Center for a Responsible Federal Budget (CRFB), just had a fascinating conversation on twitter about the future cost of Medicare spending. Given the importance of Medicare spending on the budget, the spending trajectory is of utmost importance to the US's fiscal future.
Adler tweeted out a link to a post from March 2013 that debunked the following graph, which shows that if Medicare spending grows at the at the same pace over the next 70 or so years as it has in recent years, then contrary to common perceptions, Medicare WON'T swallow the budget whole.
However, Adler and CRFP do not believe that using the last five years of Medicare cost growth as a future projection is useful.
Orszag thinks otherwise.
Here's their conversation:
Why Orszag's graph of the year on what slowing health costs mean for the federal budget is misleading: http://t.co/L695r52Y61
- Loren Adler (@LorenAdler) January 2, 2014
@LorenAdler if you update your graph to include 2013, you'll get different picture. Real growth per beneficiary over 5 yrs has been zero
- Peter Orszag (@porszag) January 2, 2014
@porszag Will try to update, but graph in question still ignores one-time cuts & aging of M'care population as more enter 80s and 90s.
- Loren Adler (@LorenAdler) January 2, 2014
@LorenAdler the point holds - off projections could be very very wrong if recent experience continues
- Peter Orszag (@porszag) January 2, 2014
@porszag That's certainly true (and I hope it is!), but chart is still misleading, which was the pt of the blog. Will try to update though.
- Loren Adler (@LorenAdler) January 2, 2014
@porszag Graph also assumes 100% of recent slowdown, which includes 1-time cuts and massive hit to retirement income, is permanent.
- Loren Adler (@LorenAdler) January 2, 2014
@LorenAdler little impact from one-time cuts (no more than 15 percent of slowdown) and prob zero from recession (see cbo tech paper)
- Peter Orszag (@porszag) January 2, 2014
@LorenAdler ps note 15 percent reductions in 2022 projections from incorporating v small share of deceleration
- Peter Orszag (@porszag) January 2, 2014
@porszag Indeed, and I agree wholeheartedly w your main pt that projections are far more uncertain now, but CEA graph still misleading.
- Loren Adler (@LorenAdler) January 2, 2014
@porszag 15% is a decent amount, though. CBO paper also says most of slowdown unexplained.
- Loren Adler (@LorenAdler) January 2, 2014
@LorenAdler DC analysts needs to go talk to health execs. They think payment system is changing and they're responding to it now.
- Peter Orszag (@porszag) January 2, 2014
@porszag Precisely, I did a lot of that for BPC's recent(ish) report. That's actually #1 evidence pt to me that decent part is structural.
- Loren Adler (@LorenAdler) January 2, 2014
@porszag Understand why it would be more muted, but also curious why financial crisis wouldn't affect senior's income & medical use.
- Loren Adler (@LorenAdler) January 2, 2014
@LorenAdler most have wraparound cov so oop is very low. And soc sec is most of income. No evidence across states of impact.
- Peter Orszag (@porszag) January 2, 2014
Here Orszag is referring to the fact that most seniors have extra coverage on top of Medicare, also known as medigap coverage. Adler is positing that seniors may have cut back on health care during the past few years due to the recession, leading to lower overall costs.
Orszag's response is that seniors' health consumption should not have changed much because 1) most have low out-of-pocket costs and wouldn't have financial difficulties affording health care and 2) for many seniors, social security makes up a large portion of their income so their incomes would have fallen less during the recession.
@porszag Yeah, that more ppl didn't stop buying medigap coverage surprised me. Trad M'care really needs an OOP cap.
- Loren Adler (@LorenAdler) January 2, 2014
@porszag Interestingly, medigap enrollee distribution is basically same as M'care as whole, though, so maybe not that surprising.
- Loren Adler (@LorenAdler) January 2, 2014