Thursday, February 21, 2008

USA Today on Costs of Seniors' Programs

On February 14, 2008, USA Today reported, in the article "Senior benefit costs rise 24% since 2000", by Dennis Cauchon, that "the cost of government benefits for seniors soared to a record $27,289 per senior in 2007."

That's a 24% increase above the inflation rate since 2000.

Medical costs are the biggest reason. Last year, for the first time, health care and nursing homes cost the government more than Social Security payments for seniors age 65 and older.

The average Social Security benefit per senior in 2007 was $13,184. * * *

The federal government spent $952 billion in 2007 on elderly benefits, up from $601 billion in 2000.

It's the biggest function of the federal government. States chipped in another $27 billion in 2007, mostly for nursing homes.

All three major senior programs — Social Security, Medicare and Medicaid — experienced dramatically escalating costs that outstripped inflation and the growth in the senior population. * * *

The USA Today article reported key findings of its analysis:

•Medicare experienced the most explosive growth from 2000 to 2007. The Medicare prescription drug benefit, started in 2006, accounts for about one-fourth of the increase in Medicare, which provides health benefits for people 65 and older.

•Long-term care costs per senior have declined slightly in the last three years because of a move away from nursing homes to less-expensive home care.

•The cost of senior benefits is equal to $10,673 for every non-senior household.

•About 35% of the federal budget is spent on senior benefits, up from 32% in 2004. * * *

In a related USA Today article by the same author, entitled "Price of seniors' care to soar as boomers age", the trend in spending on senior citizens is shown as accelerating substantially during the past seven years.

Now such spending represents the largest expenditure in the federal budget:

The federal government spends more on seniors than on any other group or program. Last year, states paid $27 billion of the $979 billion in senior benefits, primarily for Medicaid payments to nursing homes.

Federal spending in 2007 (billions) Percent of budget
Senior benefits $952.3 34.9%
Defense $552.6 20.2%
Interest on debt $237.1 8.7%

Sources: Office of Management and Budget; and USA TODAY research

Now here's the warning: Such costs will rise further as the "baby boomers" age.
The number of people ages 65 and older increased by 2.3 million to 36.5 million from 2000 to 2007, mostly because of increased life expectancy.

Seniors remained at 12% of the population during that time because of overall population growth.

That will change when the 79 million people born during the baby boom — from 1946 to 1964 — begin turning 62 this year and 65 in 2011. * * *

The senior population boom — combined with rising Social Security payments and medical costs — is projected to cause the cost of senior benefits to accelerate at an unprecedented rate. The government predicts that the cost of Medicare, the most expensive program, will double in the next decade. * * *
Such warnings have been sounded at the federal level by the Comptroller General of the United States since September, 2005, in reports & presentations. See: PA EE&F Law Blog posting, "GAO's Warnings about US Fiscal Future" (11/01/07).

Contrast the present fiscal situation, and the projections for increase in expenditures related to seniors, with another present fact reported by USA Today: "The Urban Institute estimates that kids receive an average of about $4,000 per child in benefits, including the child tax credit and other indirect assistance."

USA Today articles were discussed beginning on February 14th in postings on the AARP Bulletin Board, with varied responses. I recommend reading the comments in this debate, which will not be resolved easily.

These verified trends affect established federal programs that have created long-held individual expectations. But benefits expected by some, will create substantial burdens on others to fulfill. Future fiscal realities likely will compel adjustments to the programs.

What will be an acceptable realignment of payments to senior citizens versus taxation of younger generations? How can we balance elder care versus child development? These issues should be discussed constructively now, with a high priority for solutions that can be politically acceptable.

In my next posting, I will note how these issues and this debate are playing out in Pennsylvania right now, and also in other states -- in the context of their budgets.

Update: 02/28/08:

On February 26, 2008, The Wall Street Journal posted an article entitled "
Medicare Spending to Surge", by Jane Zhang (Page A3):
Government spending on health care could nearly double by 2017 to more than $2 trillion, according to a new federal study, reflecting a surge that promises to complicate the campaign debate about health care.

Driven by the aging of the baby-boom generation and rising costs of new drugs and medical technology, Medicare, the big federal health program for the elderly, will take up 20.7% of national health spending by 2017, according to the report. * * *
  • What's New: Government spending on health care is expected to nearly double by 2017 to more than $2 trillion.
  • The Reasons: Two main factors are driving up costs: the aging population -- especially baby boomers -- and the rising price of new drugs and medical technology.
  • What's at Stake: The latest data renews the spotlight on the question of how the government should pay for the bulging cost of health care. * * *