Aging populations and the sustainability of social security systems

Future Implications of Improving Health

In the past few decades, technological progress and economic growth have led to improvements in human health, causing a rise in the average age of the population as well as population growth. The rapid growth of the elderly in the population has emerged as a significant concern among taxpayers, elderly people, and government agencies alike, as social security and pension plans are no longer consuming the majority of incurred elderly debt. In the past, social security and pension plans were devised at a time when relatively few people reached the age of sixty-five, and these plans covered their support. However, this is no longer the case, as younger people are now required to pay the costs of their support, since most elderly people are retired and dependant on government assistance programs. As a result, many government agencies have called for reforms in their programs, attempting to find a medium between the growing aging population and the cost to support them. This paper will discuss the dilemma faced by the elderly population and the young taxpayers responsible for their support, offering comparisons and contrasts of the available literature. It will also discuss how the issue applies to my employment, and provide an analysis of my questions that were left unanswered by the literature.

Statistics predict that in the next 50 years, the proportion of people over age 65 will more than double, growing from 6.8 per cent of the global population to 15.1 per cent (UNFPA, 1998). In Western Europe, it is estimated that more than one person in four (27.5 per cent) will be over 65 in 2050. As a result, there will be many more people over 65 in 2050 than ever before; 1.42 billion, according to the United Nations' projections, or three and a half times as many as today, and over 10 times as many as in 1950 (UNFPA, 1998). Unfortunately, this growth will severely test the ability of families and societies to provide the financial, medical and social support the elderly population will need. Historically, children took care of their parents as they grew older, and often the parents even lived with them until their death. However, this has changed in the past few years due to a number of reasons. For example, relations between adult children and their parents are becoming more varied with increasing urbanization, mobility and incomes; and older people are increasingly choosing greater independence in living arrangements (UNFPA, 1998). As a result, a growing number of middle-aged people do not expect to live with or to be supported by their children when they are older.

In the next generation there will be fewer children to support their elderly parents and smaller extended family networks. Families will have more older members, and many will have both older and younger dependants at the same time.

As a result, formal and informal support systems for the elderly are becoming more important as the role of families decreases. Unfortunately, government programs responsible for supporting the growing number of elderly people have not been able to keep up with the growth of the aging population. The national government insurance program that covers nearly 41 million seniors and disabled citizens, Medicare, has raised many substantial concerns concerning its' state of financial crisis. The future obligations of young Americans as taxpayers will likely increase with the reduction of available Medicare funds; in just 10 years, one of the program's two trust funds will be paying out more than it takes in. Research indicates that Medicare could consume as much as 70% of all federal income tax revenue (National Center for Policy Analysis, 2004). Americans' obligation today as taxpayers is more than five times the $9.5 trillion they owe on mortgages, car loans, credit cards and other personal debt. This hidden debt equals $473,456 per household, dwarfing the $84,454 each household owes in personal debt (National Center for policy Analysis, 2004). A USA TODAY analysis found that the nation's hidden debt, a $53 trillion is what federal, state and local governments need immediately, beyond the $3 trillion in taxes collected last year, to repay debts and honor future benefits promised under Medicare, Social Security and government pensions (National Center for policy Analysis, 2004). That already-enormous amount also grows by more than $1 trillion every year.

Historical Background of Government Assistance Programs for the Elderly

The state-sponsored Medicaid program of today has origins that date as far back as 1945, when the idea of a state-sponsored health insurance program was initially proposed by President Truman. This concept did not become a reality until 1965, when it was authorized under Title XIX of the Social Security Act, which was enacted to provide health care services to low-income children deprived of parental support, their caretaker relatives, the elderly, the blind, and individuals with disabilities. Since then, there have been a number of key political, legislative and economic events which have impacted the Medicaid system over the last thirty years. A number of changes have been made to the Medicaid system over the years, and the agencies charged with implementing those programs have changed as well. These events have helped shape the current status of the state-sponsored Medicaid system.

After the Medicaid program was authorized in 1965, two other events quickly followed. In 1967, the Early and Periodic Screening, Diagnostic, and Treatment (EPSDT) comprehensive health services benefit for all Medicaid children under age 21 was established (U.S. Department of Health and Human Services, 2006). A few years later, in 1972, the Federal Supplemental Income program (SSI) was created, federalizing the existing State cash assistance programs for aged and disabled persons. Nearly all beneficiaries of SSI also received Medicaid coverage, and the outreach efforts undertaken with the implementation of SSI resulted in significant increases in enrollment among the aged and disabled in Medicaid, averaging nearly 8% per year during the period (Klemm, 2000). The 1972 amendments to the SSI program also added as optional Medicaid covered services intermediate care facilities for the mentally retarded (ICF/MR) and inpatient psychiatric services for beneficiaries under age 22 (Klemm, 2000). Residents of these facilities, and the disabled in general, became the most expensive groups in Medicaid, a factor that eventually led to other Medicaid reforms.

In 1996 and 1997, Congress passed two pieces of legislation that had significant impact on Medicaid; the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 effectively decoupled Medicaid from cash assistance for low-income families by replacing AFDC with a block grant program known as Temporary Assistance for Needy Families (Klemm, 2000). The welfare link to Medicaid was severed and enrollment of Medicaid was no longer automatic with the receipt of welfare cash assistance (U.S. Department of Health and Human Services, 2006). Families meeting the requirements for assistance under the old AFDC rules continued to be eligible for Medicaid, although there is evidence that many such families did not retain their Medicaid benefits. The growth of Medicaid during the first 6 years of its existence is typical of most State-based programs at their inception, a result of the economic pattern at their time of creation. Depending on the economic situation of each individual State, a number of States implemented programs immediately while others needed several years to get underway. By 1971, annual spending had reached 86.5 billion, and enrollment had topped 16 million; initial projections of Medicaid forecast less than one-half of this spending level, primarily because analysts greatly underestimated the extent to which States would offer coverage of optional eligibility groups -- especially the medically needy -- and optional services (Klemm, 2000).

These earlier acts affected the general population; the acts that came later have had the most significant impacts on the growing elderly population. The elderly population was most affected by the changes in medical care coverage and prescription drugs. The available research indicates that these changes in coverage and support are not enough to meet the predicted medical debt of the elderly in the next few years to come. This growing debt is illustrated in the predicted problems with even the reforms in Medicare. For example, the Medicare Prescription Drug Improvement and Modernization Act of 2003 created a new and complex universal prescription drug entitlement. However, according to the latest Medicare trustees report, the Medicare hospital insurance program will be exhausted in 2019, seven years earlier than the past year's estimate. The new drug entitlement will add $8.1 trillion to the program's long-term unfunded liabilities over the next 75 years. As a result, Medicare's massive costs will result in huge tax increases for young taxpayers. It is estimated that the Medicare program will consume 24% of all federal income taxes by 2019 and an additional 51% of all federal income taxes by 2042 (National Center for Policy Analysis, 2004).

The tremendous growth experienced in the first decade during which the state-sponsored Medicaid program was initiated led Congress and the Reagan Administration to consider ways to cut down on Medicaid spending. Although administration attempts to place caps on the program failed to pass Congress, the Omnibus Budget Reconciliation Act of 1981 (OBRA-81), instituted a 3-year reduction in Federal financial participation, cutting Federal matching rates by 3.0, 4.0, and 4.5 percentage points in FYs 1982, 1983, and 1984, respectively, for States whose growth exceeded certain targets, OBRA-81 also reduced eligibility for welfare benefits, thus making it harder for poor families to qualify for Medicaid (Klemm, 2000). The legislation of this era began to weaken this link by specifying eligibility criteria based on income in relation to Federal poverty guidelines. In 1991, spending controls were established, provider donations were banned, and provider taxes were capped. As a result of the mandates of the previous era, the recession, and other factors, a great deal of pressure was placed on already strained State budgets, most of which were running deficits by 1991 or 1992. Increasing Medicaid caseloads (average annual growth of 12%) and mounting expenditures prompted some States to turn to alternative financing mechanisms, which relied on disproportionate share hospital (DSH) payments, combined with the use of provider donations or provider-specific taxes as sources of the State share of Medicaid spending (Klemm, 2000).

Current State of Affairs Regarding Elderly Support

Although there have been many recent reforms to government programs that offer support for the elderly, the true cost of reforms such as the drug entitlement expansion is unknown, thus estimates could be understating the real cost. When the new Medicare law was enacted in 2003, the Congressional Budget Office (CBO) estimated the 10-year cost at $395 billion. Less than three months later, the White House Office of Management and Budget (OMB) revealed that it estimated the 10-year cost at $534 billion. This is an increase of more than $200 billion dollars, which is directly attributable to the longer life span of the aging population. All of the various government actuaries have concluded that taxpayers will likely pay far more than the initial official estimates for the first 10 years and trillions of dollars after that.

In addition to the burden on young taxpayers, the reforms have negative impacts on the elderly population itself. For example, when the new drug entitlement took effect in 2006, seniors will paid an increased estimated $420 in additional drug-related premiums in the first year, plus a $250 deductible. Although the government then pays 75% of drug costs up to $2,250, seniors are still paying $3,600 out of pocket before becoming eligible for catastrophic coverage, with the government paying 95% of catastrophic costs and seniors paying 5% (U.S. Department of Health and Human Services, 2006). Unlike the hospitalization payments, which are drawn from dedicated taxes deposited in a trust fund, the government will pay for the drug benefit from general revenues. Additionally, the new Medicare law created a prescription discount drug card, implemented in 2004, that included a $600 subsidy for low-income seniors. Unlike the subsidies provided for seniors under the drug entitlement, the drug card subsidies do not require an asset test for eligibility. The discount card was projected to save between 10% and 25%. For especially poor seniors without coverage, this was an attractive program because it is market-friendly and builds on existing private-sector entities. Unfortunately, Congress decided to eliminate this promising program after just two years of operation, in 2006.

The new drug entitlement took effect in 2006, accelerating the displacement of the existing drug coverage for millions of retirees, including the coverage that many seniors had through former employers.

In addition to the rising health care costs, there are other costs associated with supporting the elderly population as well. The Administration on Aging (2007) predicts that there will be large increases by 2030 in the numbers requiring special services in housing, transportation, recreation, and education. There will also be large increases in some very vulnerable groups, such as the oldest old living alone, older women, elderly racial minorities living alone and with no living children, and elderly unmarried persons with no living children and no siblings (Administration on Aging, 2007). These groups need the most monetary support, since these are also groups with the highest percentages living in poverty or with low incomes. In addition to taxpayers paying the costs of government programs, young people will also bear additional costs of taking care of their elderly family members. This is because the number of persons requiring formal care, such as nursing home care, and informal care at home, will continue to rise. Thus, the younger population must take on nursing home costs or costs to have a nurse take care of the elderly person at home.

The Administration on Aging (2007) points out that elderly living alone presents an additional risk, and the risk mounts when the person living alone has no children or siblings. The research indicates that these characteristics are more common among those 85 years and over as compared with those under age 85; at ages 65 and over only 2% of the population have these characteristics in combination, but at ages 85 and over perhaps 6% have them (Administration on Aging, 2007). Additionally, to compound the problem, the life expectancy for the elderly will probably continue to increase, even in the number of persons with poor health and disabilities, including Alzheimer's disease. These issues become more expensive to support, in combination with other problems. For example, most of the survivors at the highest ages are women and, in particular, widowed women, and this will remain the prevailing sex-marital balance because its principal causes (the premature death of men, including married men, and the very low remarriage rates of elderly women) are expected to persist (Administration on Aging, 2007). The imbalance of the sexes and the low percent of married women have been associated with reduced income, greater poverty, poorer health, and greater risk of institutionalization of older women (Administration on Aging, 2007). Therefore, the majority of the literature indicates that the rising cost of elderly support is an epidemic that will continue to grow.

Other research addresses the debt expenditure problem faced by society through the attempts of "tax and expenditure limits," or a means of limiting the growth of state revenue collections and state expenditures to a population-growth-plus-inflation formula. Under such proposals, state constitutions would be amended to bar state and local expenditures from rising at a percentage rate that exceeds the rate of growth of state population plus an inflation factor (Bradley et.al., 2005). The research indicates that if a population-plus-inflation tax and expenditure limit had been in place in all states from 1990 to 2004, aggregate state own-source expenditures in 2004 would have been $162.7 billion, or 21%, below its actual level (Bradley et.al., 2005). Closing this gap in 2004 could have been achieved by cutting 78% of all state K-12 education budgets; all state Medicaid and transportation spending; or 60% of all other state spending (Bradley et.al., 2005).

However, this method has been criticized on the basis that no existing measure of inflation correctly captures the growth in the cost of the kinds of services purchased in the public sector, so the inflation adjustment generally is not sufficient to allow the continuation of existing services. The subpopulations that state governments serve tend to grow more rapidly than the overall population growth used in the formula. For example, while total population grew by 15.4% from 1990 to 2002, total state prison population grew by 83%, disabled children in schools grew by 35%, and the number of elderly and disabled persons on Medicaid grew by 70% (Bradley et.al., 2005). Additionally, over the next 40 years, the elderly population will grow at twice the rate of general population growth.

Conclusion

Major changes in the demographic profile of the United States are under way, and these changes are projected to accelerate in the next several decades. The Institute of Medicine (1996) reports that important demographic shifts include the aging of the population and the projected growth of the oldest old (those 85 years of age or more); the changing racial and ethnic composition of the population resulting from immigration and the rapid growth rates of the minority populations, the shifts in family trends toward smaller family size, childlessness, and divorce; and increasing poverty. As a result, the growing elderly population will be a major determining force in the next century for the demand and supply of health services and, therefore, for the type of resources needed to provide those services. These shifts take on added importance and urgency in the context of a rapidly changing health care system, placing intense stress on the system as it tries to hold down expenditures and, at the same time, increase access and maintain quality of health care (Institute of Medicine, 1996).

A review of the available literature indicates that changes in population imply changes in the health care services, government programs, and the tax system, that will be needed in the years ahead, especially among the elderly population. The 21st century has been hailed as the "Information Age," or an age when society comes together through globalization. However, these technological advances that have benefited society in so many ways have begun to have negative affects. From a financial standpoint, those same technological advances that have provided for more food, more effective sanitation, and better health services have increased the debt of the aging population. A substantial flaw in the system that supports the elderly is that Americans treat health care as a commodity. This has been the case for a long time, however, the effects went unnoticed during the economic boom of the 1990's. The problem is that when health care becomes a commodity, the criterion for receiving it is the ability to pay, not the medical need.

Private insurers and providers end up competing with one another to avoid high-cost patients, so they can keep more of their revenues.

Finally, what I believe we need is a national single-payer system that would eliminate unnecessary administrative costs, duplication and profits. In many ways, this would be tantamount to extending Medicare to the entire population. Thus, a solution to this crisis must be found before it too late. If nothing is done, we are cheating ourselves and our grandchildren of the health benefits we have worked all their life for. Without a solution that adequately addresses this problem, the opportunity to live longer will no longer be a benefit to society. Without some necessary reforms, aging in today's society will continue to be a problem.