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The Original Estimates of Medicare’s Costs Were Vastly Underestimated

• In 1965, the official estimate of Medicare’s costs was $500 million per year, roughly $3 billion in 2005 dollars.*
• The actual cost of Medicare has turned out to be 10x that estimate.
• Medicare’s actual net loss (tax receipts + trust fund interest – expenditures) has exceeded $3 billion (adjusted for inflation) every year since 1976 and was $146 billion in 2008 alone. In other words, had the original estimate been accurate, the cumulative 43-year cost since Medicare was created would have been $129 billion, adjusted for inflation.
• In fact, the actual cumulative spending has been $1.4 trillion** (adjusted for inflation)…in effect, 10x over budget.
• While calculations have been flawed from the beginning for some of USA Inc.’s entitlement programs, little has been done to correct the problems.

An accurate economic forecast might have sunk Medicare.
David Blumenthal and James Morone
“The Lessons of Success – Revisiting the Medicare Story”, November 2008

KP
CB www.kpcb.com
Sources: * Lyndon B. Johnson Library & Museum. Medicare spending data per White House OMB.
**Dept. of Health & Human Services, CMS, data adjusted for inflation based on BEA’s GDP price index.
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Many Leaders Have Voiced Concerns About Entitlement Program Math / Spending

The entitlement programs are not self-funded…they are unfunded liabilities. They are the single biggest component of spending going forward.
-- Ben Bernanke, Chairman of the Federal Reserve
Testimony before House Budget Committee, June 9, 2010

The time we have is growing short…there are serious questions, most immediately about the sustainability of our commitment to growing entitlement programs.
-- Paul Volcker, Former Chairman of the Federal Reserve
Chairman of President Obama’s Economic Recovery Advisory Board
Speech at Stanford University, May 18, 2010

KP
CB www.kpcb.com
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