If History is a Guide, There is Potential for Estimates to Understate

If History is a Guide, There is Potential for Estimates to Understate Eventual Costs — Medicare Is 10x Higher Than Spending Forecast Actual vs. Estimated Spending on Medicare In reality, total 420 spending increased 61.1x — Re} 100 2) J zs © = QQ = - se so oe se we oe ee eee ee = In 1967, the House 2 A In the first year of Ways & Means 2 60 Medicare, total Committee estimated = a= spending was spending would ov . Sag $1.8bn increase 6.7x by 1990 2 ov = E c 20 ----- +r rrr rrr rrr rrr re ii SE nt na at nom Hum! - ee oe £ ¢ $12B < SL ’ $2B ) 1966A 1990E (in 1967) 1990A Source: Senate Joint Economic Committee Report, 7/31/09 i USA Inc. | Income Statement Drilldown 119 However, More Recent Healthcare Entitlement Such as Medicare part D Has Cost Less Than Expected Medicare Part D (the 2006 outpatient drug benefit for seniors) was projected to cost $111 billion annually. e In 2009, Medicare Part D’s actual cost = $61 billion, 45% below projection. e The government originally projected 43 million beneficiaries in 2009, but only 33 million seniors (23% below projection) elected to participate in 2009. Medicare Part D was outsourced to the private sector, and seniors elected to enroll in plans operated primarily by managed care organizations, which utilize a variety of techniques to reduce costs and improve the quality of care. e The Washington Times stated on August 16" 2010 — "The lower cost - a result of slowing demand for prescription drugs, higher use of generic drugs and fewer people signing up - has surprised even some of the law's most pessimistic critics." e The Part D experience has given some observers hope that PPACA will not cost more than anticipated. KP Source: Morgan Stanley Healthcare Research. (@E) www.kpcb.com USA Inc. | Income Statement Drilldown 120 HOUSE_OVERSIGHT_020901