The Medicare Mess: An Almost Good NRO Oped

Bruce Bartlett’s latest raises the standards of NRO economics just a bit:

It is not clear what is driving the urgency of Social Security reform. It is desirable, to be sure, but nothing will happen to anyone’s benefit for some time to come. By contrast, the Medicare system is on the verge of collapse, according to a new government report.

Bruce provides a link to this report and Chart 5 on page 80 is entitled Total Medicare (HI and SMI) Expenditures and Noninterest Income as a Percent of GDP: 1970-2078. Expenditures are projected to exceed revenues after 2006. Is there an impending crisis in how we pay for health care? You bet.

But some of what Bruce writes strikes me as imprecise. “Its hemorrhaging money” is his subtitle but chart 5 does not say there is a current deficit – it says there is a projected deficit. Bruce once emailed AB: “it is silly to attribute debts long in the future to the current generation of current taxpayers” in response to a comment from me that this oped was comparing the 2075 future value of GDP to the 2002 present value calculation put forth by Kent Smetters and Jagadeesh Gokhale that showed a $44 trillion general fund problem.

Bruce also notes that this Financial Report of the United States Government:

says that the unfunded liability of the Social Security system is $12.5 trillion, an increase of $810 billion over the previous year. However, the Medicare deficit is twice as large: $24.6 trillion, an increase of $9.6 trillion from 2003.

Let’s remember that unfunded liability really means the estimate of the present value of expected future (negative) cash flows. So why should we use different standards when discussing the general fund deficit versus matters such as the Social Security Trust Fund? Rather than answer this rhetorical question, let’s have Brad Setser step up to the microphone:

Don’t forget that the government — the non social security part — has expenditures well in excess of revenues RIGHT NOW. Dick Cheney apparently thinks cash flow deficits that have to be financed by issuing tons of debt don’t matter, but cash flow deficits than can be financed by drawing on the interest from your stock of existing assets are a real problem … interesting financial logic.

OK, Bruce’s logic trumps the (il)logic of the Vice President, but …