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The Government Tells Another Healthcare Whopper

iStock_000006562788XSmall—which the New York Times, the American Association for Retired Persons (AARP), and others fall for….
Earlier this month, Medicare’s trustees published their annual report. In response, NYT’s Paul Krugman crowed that Medicare was in better financial shape than previously thought and that “health reform was the biggest move toward fiscal responsibility in a long, long time.” AARP agreed, and stated that “the [Medicare] program is financially strong in the short-term and can be strengthened in the future with relatively modest adjustments.”

Other news stories picked up this same theme, declaring that Medicare was in better financial shape than expected because of the health reform act, and would be sound for years to come.
Not so fast. In response, and for the first time in Medicare history, the Medicare Chief Actuary called the trustees’ projections “unreasonable” and “implausible,” and encouraged everyone to ignore them and view instead an illustrative alternative report:
The Trustees Report is necessarily based on current law.…However, the projections shown in the report do not represent the “best estimate” of actual future Medicare expenditures.
What does all this mean? Why is the chief Medicare actuary calling the official Medicare report nonsense? You will recall that the non-partisan Congressional Budget Office reported that the new national healthcare legislation would reduce the budget deficit. It had to do this because it was required to use a misleading ten-year projection period (with revenue starting early and expenses later) and to assume that Medicare expenses would be drastically cut, along with other unrealistic inputs. The new Medicare report was false for the same reason: it assumed Medicare cuts that everyone knows will never happen.
Economist John C. Goodman, PhD, reports that the health reform law’s Medicare provisions, if unchanged, would cause:

  • Cuts in Medicare spending of $575 billion over the next decade;
  • 7½ million members of Medicare Advantage plans to lose their coverage and cause another 7½ million to face higher premiums and benefit cuts;
  • About one in seven facilities—hospitals, skilled nursing facilities, home health agencies, and hospices—to become unprofitable and possibly drop out of Medicare altogether; and
  • Many more doctors to quit seeing Medicare patients entirely.

The Medicare Actuary’s alternative report says that the number of facilities that would become unprofitable will grow to 25% by 2030 and 40% by 2050 if the health reform law is implemented as written.
This is not actually the first time that the Medicare Actuary has disagreed with a Medicare report, although it is the first time that the Actuary has spoken up. Back in 2003, the Medicare Administrator told Congress that the proposed new prescription drug benefit for seniors would cost $400 billion over ten years. Later it turned out that the then Medicare Chief Actuary had told his boss that this was a lie, that the best estimate was $534 billion, but was told to shut up if he did not want to be fired. It was widely agreed that the bill would not have passed with the correct estimate.
Six month later, the estimate was quietly raised to the higher figure. And when all this came out, the Medicare Administrator was not disciplined or punished, even though he appeared to have engaged in fraud.
This is the basic problem. Private businesses knowingly releasing false information can be sent to jail for fraud. Governments release false information all the time with seeming impunity.
The British governor of Hong Kong in the 1960s, Sir John James Cowperthwaite, famously refused to allow his government to compile or release economic statistics. He said that they would just be manipulated and misused, and would provide excuses for misguided government actions.
Perhaps Cowperthwaite had a point. Hong Kong boomed under his administration. When he took over, the average resident of Hong Kong had just over a quarter of the income of an average Briton. According to Swiss financial analyst and advisor Dr. Marc Faber, by the time the Chinese took over in 1997, the average Hong Kong resident had 137% of the average Briton’s income.
There are reasons to doubt many government economic statistics (e.g., inflation and unemployment), not just those about healthcare. With all due respect to Cowperthwaite, it would be better to have statistics, but ones that we could trust.

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