Today I'm going to let you in on a little secret about forecasting health care costs: All the forecasters cheat. Cheat? Yes, cheat.

There is nothing underhanded about it. For people who read footnotes and appendices, the information is all there. But for ordinary mortals, the projections you see are not what you think they are.

But let's back up. Why do you even care about forecasts of future health care spending? The rational reasons are: (1) to figure out what path we are currently on, (2) to decide whether the path is acceptable, and (3) if it is not acceptable, to figure out how to get off of it.

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            On Good Friday (when most people were off, including most reporters) the Administration announced that the following Tuesday during Spring Break (when Congress was in recess and everyone's attention was focused elsewhere) the Social Security/Medicare Trustees annual report would be released.

            Apparently someone isn't anxious for you to pay close attention to this year's report. The table below may explain why. The federal government has promised more than $100 trillion in benefits over and above expected taxes and premium payments!

PRESENT VALUE OF UNFUNDED LIABILITIES

*These calculations ignore the existence of the trust fund, estimated at a little more than $2 trillion.

Source: Social Security/Medicare Trustees Reports 2008

Read and weep.

The same law that gave us Medicare prescription drugs says that if Medicare's finances deteriorate sufficiently the President must propose a remedy and Congress must expedite its consideration. In releasing its annual report the other day, the Medicare Trustees announced that this financial "trigger" has been hit.

How dire are things?  Very dire.  Once the baby boomers begin to retire, the federal government will face a cash flow nightmare:

• In just five years, the government will have to stop doing one in every ten (non-entitlement) things it has been doing in order to keep its promises to the elderly.
• In 13 years, the government will have to stop doing one in every four things it currently does.
• And this forecast does not even include the impact of baby boomers on Medicaid, which is almost as big as Medicare.

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The Social Security and Medicare Trustees just issued their annual report.  The results are very bad.  The government has promised far more benefits than we can pay for at current tax rates.

The unfunded liability in Social Security and Medicare over the next 75 years is $38.6 trillion.  Looking indefinitely into the future, the unfunded liability in these two programs is $87.9 trillion, almost six times the size of the US economy.

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Larry Kotlikoff and his colleagues have completed a ten country study that estimates future health care spending. Among the results: government at all levels in the United States currently spends about 7.2 percent of GDP on health care, mainly on Medicare and Medicaid. Yet, if benefits expand at the rate of the past 30 years and if the population ages the way demographers predict, spending will equal one-third of national income by mid-century, when today's college students reach the retirement age. If that is not immediately alarming, note that one-third of GDP is about equal to all government spending for all purposes today. If private spending on health care keeps up with public spending, the nation will devote about two-thirds of national income to health care by mid-century - an amount roughly equal to the total consumption of all goods and services!

So in the public sphere, health care is on a course to crowd out every other government program - from education and roads and bridges to Social Security and national defense. And for the economy as a whole, health care is on a course to crowd out every other form of consumption, including food, clothing, housing, etc.

View the full study here. 

http://www.ncpa.org/pub/st/st286/