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Thursday, October 8, 2009

Projecting Health Care Costs: Try Medicare

You want to hear a scary number. When Medicare first passed in the 1960's, the program was worth $60 million yearly. The budget in Fiscal Year 2008 was $413 billion for Medicare. That's a roughly an increase of 8000 times in less than fifty years.

So, yesterday, we heard that the CBO had scored the newest health care bill and scored it's cost at $812 billion over the next ten years. We also know that entitlement programs, especially those that involve health care, grow exponentially. Just think about this scary thought. If Medicare grew from $60 million to $400 billion in less than fifty years, how much will this health care reform grow in the same time frame?

Politically, what the CBO says is very important. We hyperanalyze each and every number. In reality, all these numbers are totally irrelevant. All of them are projections. Does anyone really believe that Medicare would be law if in the 1960's we were told that it would grow to $400 billion in less than fifty years.

That's what always happens with entitlement programs. Once you give someone something for free, even if it's paid for out of taxes, then everyone wants their piece. So, costs invariably increase exponentially. Medicare went from a relatively small program to a massive program. This health care proposal, whatever the final bill will be, will start as a massive program. So, we can all only imagine just how large it will grow to. If the current health care bill grows at the same pace it will be a yearly $60 trillion program by about 2060.

So, ultimately, the numbers being debated are only important on a political level. On a policy level, they mean nothing. The exponential growth of Medicare proves that. What matters is just how much the growth of government will be. What matters is just how many people will get free stuff. In the House bill, we'll have 53 new bureaucracies created. In both chambers, the amount of people covered under Medicaid will increase exponentially. So, what we have is an exponential growth in the size and reach of government. In that case, as evidenced by the growth of Medicare, the costs increase exponentially. It's impossible to know just how big this bill will grow to but it is clear that we, as a nation, won't be able to afford it very soon.


Anonymous said...

"If Medicare grew from $60 million to $400 billion in less than fifty years, how much will this health care reform grow in the same time frame?"

I think the real question that needs to be asked is "how fast will health care costs grow if we do nothing?" I mean health care costs are already growing really really fast. At this rate, we'll all be on Medicaid within a decade or two anyway.

As far as would Medicare have passed if they knew it would cost as much as it does today, I think you're attempting to project Reagan's influence on American political culture to before he came to power. I mean back in the 60s Reagan once said that Medicare passing would mean we'd look back one day and tell our children about when America used to be a free country. Its not like anyone was listening to him back then.

Anonymous said...

Actually, the CBO didn't score the provision that requires the OMB to redo the projections every year and cut the program's subsidies accordingly. I guess that means they already planned for what you just said.