Predictable Unpredictability: the Problem with Basing Medicare Policy on Long-Term Financial Forecasting

The authors assess how Medicare financing and projections of future costs have changed since 2000. They also assess the impact of legislative reforms on the sources and levels of financing and compare cost forecasts made at different times. Although the aging U.S. population and rising health care costs are expected to increase the share of gross domestic product devoted to Medicare, changes made in the program over the past decade have helped stabilize Medicare's financial outlook--even as benefits have been expanded. Long-term forecasting uncertainty should make policymakers and beneficiaries wary of dramatic changes to the program in the near term that are intended to alter its long-term forecast: the range of error associated with cost forecasts rises as the forecast window lengthens. Instead, policymakers should focus on the immediate policy window, taking steps to reduce the current burden of Medicare costs by containing spending today.