qotd: The importance of predictable unpredictability in long-term financing of Medicare

The Commonwealth Fund
July 13, 2015
Predictable Unpredictability: The Problem with Basing Medicare Policy on
Long-Term Financial Forecasting
By Sherry A. Glied, and Abigail Zaylor

Conclusion: Uncertainty Is Inherent in Medicare Policymaking

Predicting health care costs 20 or 30 — let alone 50 or 75 — years into
the future is an inexact science, at best. The costs of providing care
depend on future innovations in technology, the value of such
innovations to beneficiaries and to taxpayers, and the supply of and
demand for health care services. As the Part D experience and the recent
cost slowdown suggest, projections of the rate of future technological
change are hard to make even in the short run.

The aging of the baby boomers and rising health care costs will
plausibly increase the share of GDP devoted to Medicare, but nothing is
certain. As we have shown, changes made in the program over the past
decade meant that despite substantial expansions of benefits, the
financial outlook for the program remained quite stable. The experience
of the past 15 years suggests that there is room for considerable
optimism about the ability of our nation to afford the Medicare program
into the future.

Long-term forecasting uncertainty should make policymakers and
beneficiaries cautious about dramatic changes to the program in the near
term. The range of error around forecasts of Medicare costs rises as the
forecast window lengthens. This suggests that policymakers should focus
on the immediate policy window, taking steps to reduce the current
burden of Medicare costs by containing spending today. Medicare
expenditure policy changes, such as changes in payment rates or methods,
can and have taken effect very quickly. Similarly, revenue changes to
pay these expenditures occur in real time. Future policymakers are
likely to have as much opportunity and much more information than
current policymakers to make optimal decisions about Medicare's future
costs.

The challenges of forecasting Medicare costs provide an additional
rationale for paying retiree costs through social insurance rather than
a defined-contribution system. Individuals simply cannot anticipate what
health care is likely to cost after they retire, and they cannot know
how much to save against the prospect of these costs. If talented
professional actuaries have difficulty making forecasts, then
individuals will surely struggle to project what services they will need
in the future. As a society, we can decide through the political process
to alter policy or payment practices—and we have done so in the past—but
such alterations are well beyond the power of any beneficiary.

http://www.commonwealthfund.org/publications/issue-briefs/2015/jul/predictable-unpredictability-medicare-financing

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Comment by Don McCanne

For decades we have been hearing from politicians that Medicare is going
broke, especially when looking at long-term predictions. Yet as the
years roll by, the predictions are continually revised downward in the
short term, demonstrating that the doom and gloom of past predictions
were not warranted. Yet since long-term forecasting is uncertain, should
we be considering major policy changes in Medicare financing?
Specifically, should we consider converting Medicare from a social
insurance program to a defined-contribution program as politicians are
now suggesting?

Well, no. What we want is is for people to be able to access health care
without impairing their personal financial security. The
defined-contribution, premium support (voucher) model being proposed is
designed to slow federal contributions to the Medicare program by
shifting more costs to the beneficiaries. That may help politicians
balance the federal budget, but it would increase the risk of financial
insecurity for the beneficiaries - the opposite of our goal. Also it
would add to the administrative waste that already characterizes our
system since it would shift us from the administratively-efficient
traditional Medicare program to a system of a market of private plans
with all of their wasteful administrative excesses and inequities.

The uncertainty of long-term predictions does not mean that we should
ignore the future. In fact, this uncertainty should provide us with
greater motivation to establish a more stable infrastructure for health
care financing. The obvious would be to establish our own public
monopsony - a single payer national health program, an improved Medicare
that covers everyone. Although unpredictability is predictable, at least
a single payer infrastructure would ensure all of us access and
affordability as future needs and resources are confronted.