The world of hard infrastructure constraints and soft human choices

Nowhere does our obligations to pay for the past intersect with our desires to invest in the future more than at Medicare.  The Wall Street Journal has an important story today by Janet Adamy and Tom McGinty - - The Crushing Cost of Care.  The problem of obligations versus desires in the context of baby boomers had a starting point when the last baby boomer left the hospital nursery.  Demographics is destiny.  With 74 million baby boomers taking stage for retirement, the cost of their health care is set to be the longest chapter in the "How We Spend Money" book.

Many variables influence our collective actions regarding investing in the future.  Investments from new schools, to rehabilitating bridges, to preparing for climate change - - investing will always have a future tense.  One key variable has a tense more in the past than the future - - Medicare. 

The other important point; we have started the era of we really don't have separate pots of money to fund programs.  One pot for fixing potholes.  One pot for Social Security.  One pot for Medicare.  If you look at the latest highway funding bill - - we have clearly started the era of transferring money around between pots.  The past will borrow from the future and the future will borrow from the past - - and government accounting does not make this very transparent.

Medicare's net expenditures totaled $486 billion last year, according to the Congressional Budget Office, or 13.5% of all federal expenditures.  In March, the CBO projected that Medicare expenditures would grow an average of 5.7% per year through 2022 and equal 16.2% of all federal outlays.  The Italian economist Pareto (the Pareto Effect - - e.g., 80% of your profit comes from 20% of your customers) would probably smile at the metrics associated with Medicare.  Just 10% of the 24 million Medicare beneficiaries who received any impatient or outpatient hospital care in 2009 accounted for 64% of the cost.

Medicare patients rack up disproportionate costs in the final year of life.  In 2009, 6.6% of the people who received hospital care died.  Those 1.6 million people accounted for 22.3% of total hospital expenditures.

This is a very difficult subject to discuss.  No one at any level in our society wants to confront the realities of the costs associated with Medicare (and the program has tremendous societal benefits).  It is not a world engineers are comfortable with.  We are much more comfortable with hard infrastructure constraints than a world of soft human choices.  But the realities need to be clear in our 80/20 Medicare world - - if we are ever to control rising health costs, we will have to do a better job confronting the realities of our obligations to the past.

The quality of our collective future fundamentally depends on how we think and manage the past.