Assuming a Can Opener

I have previously expressed skepticism about projected Medicare spending assumed in the health reform effort making its way through Congress. If reductions in spending don't materialize as Congress now posits, health reform will not turn out to be deficit neutral but will, instead, add to the large fiscal gap we are bequeathing to future generations. In a recent letter, CBO gives some numbers about projected Medicare spending that shows how wildly unrealistic it is:

The bill would put into effect (or leave in effect) a number of procedures that might be difficult to maintain over a long period of time. It would leave in place the 21 percent reduction in the payment rates for physicians currently scheduled for 2010. At the same time, the bill includes a number of provisions that would constrain payment rates for other providers of Medicare services. In particular, increases in payment rates for many providers would be held below the rate of inflation (in expectation of ongoing productivity improvements in the delivery of health care). Based on the extrapolation described above, CBO expects that Medicare spending under the bill would increase at an average annual rate of roughly 6 percent during the next two decades—well below the roughly 8 percent annual growth rate of the past two decades, despite a growing number of Medicare beneficiaries as the baby-boom generation retires.

Thanks to the blog reader who drew this passage to my attention.