How Much to Trust the Medicare Trustees’ Projections?

The recently released Medicare Trustees Annual Report [pdf] contains a stark reminder of the Alice in Wonderland nature of Medicare’s financial projections and policy-making. Page 219 of the report carries the chief actuary’s “Statement of Actuarial Opinion.” Its contents should be mandatory reading for those worried about the program’s future. The statement’s second paragraph is reproduced here:

…the Board of Trustees has emphasized the strong likelihood that actual Part B expenditures will exceed the projections under current law, due to further legislative action [emphasis added] to avoid substantial reductions in the Medicare physician fee schedule. While the Part B projections in this report are reasonable in their portrayal of future costs under current law, they are not reasonable as an indication of actual future costs. Current law would require physician fee reductions totaling an estimated 37 percent over the next 9 years—an implausible result.

In other words: Despite Medicare being in a deep financial hole, don’t expect policymakers to stop digging for a while yet.

The funny part is that the actuarial method used in making projections is perfectly legitimate; it makes projections by completely ignoring future policy changes—no matter how likely they are. But the chief actuary is also correct to point out that certain aspects of current Medicare law are ridiculously out of touch with political reality.
Most official budget analysts have thrown a fit whenever I’ve used the words “debt” or “liabilities” to describe current-law Medicare obligations to future retirees. “We don’t ‘owe’ anyone anything because Congress can change current laws!” they’ve protested.

The chief actuary’s statement exposes the hypocrisy: His statement means that we are also obligated to pay future medical providers MORE than current laws stipulate. And, oh, by the way, don’t call that “debt” either because, in this case, Congress can choose NOT to change the laws!