CBO vs. Medicare Trustees: Whose healthcare cost projections are right?

The Medicare Trustees report released last week projects Medicare spending will increase to 5.5 percent of gross domestic product by 2050 and grow to 6 percent by 2080. However, a June Congressional Budget Office report projected Medicare spending would reach 7 percent of GDP by 2050 and grow to more than 11 percent by 2080, according to The Wall Street Journal.

Why do the projections differ?
"Where they differ is in what is assumed about Medicare spending growth relative to growth [in] other health spending," writes Louis Sheiner, a senior fellow in economic studies and policy director of the Brookings Institution's Hutchins Center on Fiscal and Monetary Policy.

The trustees assume per capita Medicare spending will increase more slowly than other health spending, while the CBO assumes the opposite.

The trustees base their assumption on the belief that Medicare payments under the Affordable Care Act are increasingly likely to fall below private payer and Medicaid reimbursement levels over time, which would cause Medicare spending to rise at a slower rate than other health spending.

In contrast, the CBO has the view that future health spending is too uncertain to be modeled, and uses a mechanical rule that assumes private payers and Medicaid will have more flexibility than Medicare to slow spending growth in the future.

Which projections are right?
Ms. Sheiner contends neither of the projections should be believed, as predicting future health spending is almost impossible. "The large wedge between these two arguably sensible projections of Medicare should be taken as evidence that we really don't know how big a fiscal problem health spending will be 25 or 50 years in the future," she writes.

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