Government Forecasting

Here is a letter I recently sent to the Midland Daily News:

Joe Weir, in his recent letter, offers an extensive analysis of the health care bill recently passed by congress (“Understanding health care reform,” May 16).  Amongst all the cost savings and benefits, he cites the following projection: “The legislation will reduce the deficit by over $100 billion over the next ten years and by about $1 trillion over the second decade.”

The following are four examples of government’s ability to forecast government health care costs in the past:

1.       When Medicare was created in the 1960s, the long-range forecasts estimated that the program would cost about $12 billion by 1990. It ended up actually costing $110 billion that year, or nine times more than expected
2.       When Medicaid was created in 1965, it was supposed to be a very small program with annual expenditures of about $1 billion. It now costs federal taxpayers $280 billion per year.
3.       Medicaid’s disproportionate share hospital (DSH) program was created in 1987 to subsidize hospitals with large numbers of uninsured patients. The program was supposed to cost $1 billion in 1992, but actually cost $17 billion.
4.       The Medicare Catastrophic Coverage of 1988 was repealed after less than two years, in part because some provisions were already projected to cost six times more than originally forecast.*
The examples above do not prove that the $100 billion dollar deficit reduction projection is inaccurate.  They should, however, make one skeptical of government’s ability to accurately forecast the costs of the most recent health care reform.
Kurt Bouwhuis
* Daniel J. Mitchell, Will Federal Health Legislation Cause the Deficit to Soar? (Tax and Budget Bulletin 2009)


One thought on “Government Forecasting

  1. Amazing! Keep it up, Kurt.

    You keep going like this and soon people are going to start paying you to write.

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