Aging Populations Leaving a Legacy of Debt
Mario D. Garrett Ph.D.
San Diego State University
The Reality of Aging Populations
In the last century (1900-2000) in the United States, life expectancy for 65 year olds increased by 5.7 years while for 85 year olds the increase was 2.3 years. This is less then present difference between the life expectancy of Whites and Blacks in America—which is 6.3 years. If, in the last century, there was very little improvement in life expectancy at older ages, then what causes the aging of populations if not living longer?
This article examines this question and goes beyond the clichés and the soundbites to expose an underlying dynamics of how aging in America came about and the repercussions and what we will have to confront as a nation.
Two of the most important contributing factors to the aging of populations are the decline in births and the decline in infant mortality. These two phenomena go hand-in-hand. The relationship is complex but both factors come about as a result of women becoming better educated. Better-educated women have fewer children—because they are either studying/working, they have reduced incentive and opportunity to bear many children—and they tend to have children later in life, with greater lag in-between bearing children. With better education come better personal health practices, more nurturing of infants, and greater investment in children’s education. Despite self-congratulatory assertions that the aging of populations is due to scientific and clinical advances, the single predominant reason for an aging population is that half a century ago women started to become better educated which changed their preference for the number of children they wanted and how they nurtured them.
Women’s educational attainment in the United States (both high school and college) shot up in the fifties partly due to the GI Bill and increased federal funding for higher education. Beginning after WWII, the nation’s share of female workers rose from less than 25 percent to 38 percent (1970) to 47 percent (1990). It comes as no surprise that the single most important issue in the developing world is the education of women—a stated priority area for the largest aid programs in the United Nations (Population Fund) and the United States (USAID).
The ripple effect from this simple yet dynamic social change is far reaching. In the 1920s, the United States saw a gradual decline in the crude birth rate (number of births per 1,000 people) from a high of 27 to a low of 18 during the Great Depression. It went up again at the end of the Second World War peaking at 26—which created the baby boom—followed by a gradual decline to fewer than 15 in 2000. What we call the baby boomers are in fact the bulge of children born between 1946 and 1964. Although birth rates differ significantly among different ethnic and racial groups, this bulge can be seen across the world. So, in answer to our first question—what causes population aging? The answer is straightforward: children are responsible for an aging population as they become older adults within the next two decades.
Children are responsible
The difficulty comes when we try to explain the effects that an aging population will have on society. For the sake of argument, let’s consider two simple scenarios, one negative and one positive. The negative gloom-and-doom story is that there will be a wave of older adults clamoring for health and social services that have become diminished in the new period of austerity, depleting a withered Social Security fund, draining the Medicare fund and competing for limited resources. With this type of scenario, what type of negative indicators would we see?
If the conditions resemble those of a century ago—when we did not have social security or Medicare or any social services—we would expect to see a drop of 5.7 years in life expectancy at age 65 years. This means that half of the elderly (65 years and older) population will die 5.7 years earlier than what we are experiencing now. However dramatic such an event, this is not “hold the front page” news. The effects will primarily impact the underprivileged, the poor and predominantly non-White groups. For these cohorts, we will find that certain treatable conditions go untreated, physical and mental disabilities will become more apparent, and more unmet needs will be experienced. As a gloom-and-doom scenario, this is nevertheless not apocalyptic. We only have to look at minority elders’ health and services to see this general scenario playing out today, both internationally and in the United States.
Internationally, we have already started to see life expectancy plummeting, especially in Africa, despite a decade of gains in other social and health-related fields. All sub-Saharan African nations are seeing a reduction in life expectancy at birth of 10 to 20 years, and by 2010 it will get worse—primarily because of AIDS/HIV. The United Nations Development Programme has reported evidence of significant decline in life expectancy in Armenia, Belarus, Bulgaria, Latvia, Lithuania, and Romania due to the rise in “self-destructive behavior, especially among men.” Increased mortality rates that result in declining life expectancies, however repugnant, are part of our present world.
In the United States, we also see such discrepancies. An average White male has a life expectancy of 17.8 additional years at age 65, while an average African American will live 16.1 additional years. To date, despite the billions of dollars expended on data, federal agencies publish no accurate figures that report life expectancy for non-White elders apart from Black/White. In addition to missing data on race and ethnic groups, data is not analyzed by income. So if a decline in life expectancy exists for particular strata of our society, we will not be able to record it.
Health of Minorities
However non-federal data show that mortality patterns are vastly different for non-White groups. African Americans fare the worst in half of all major disease categories, closely followed by American Indians /Alaska Natives and Native Hawaiians. In contrast, Asian and Pacific Islanders fare the best in all categories except for cervical cancer—when compared against Whites only, although combining Asians with Pacific Islanders hides gross inequities. Hispanic Americans exhibit lower mortality rates than Whites, apart from deaths caused by diabetes, cirrhosis, drug-use, homicide, cervical cancer, and HIV infection. HIV infection among African Americans is ten times higher than for Whites—and 20 times higher for African American children under 5 years of age. Again, the variance in patterns of death among U.S. racial and ethnic groups is larger than the variation across U.S. combined and other countries. The outcome is that at the present level of national surveillance, pessimistic projections will result only in an exacerbation of existing patterns of mortality—mortality rates will increase—rather than a radical change in mortality patterns. This is the negative scenario.
Now for the positive scenario. Most analysts are hoping that a political initiative will emerge that responds to the needs of aging boomers. Elected officials may feel compelled to transform Social Security, Medicare/ Medicaid, and shore up social services in a coordinated effort to address these radical social changes. We have some historical precedence here as well. The Great Depression of 1929 is a prime example of how capable our elected officials can be in dealing with social upheaval. When President Roosevelt took office in 1933, his administration created program after program to give relief, create jobs, and stimulate economic recovery. These programs were called the "New Deal” and included:
• Emergency Banking Act/Federal Deposit Insurance Corporation,
• Federal Emergency Relief Administration,
• Civil Works Administration/Civilian Conservation Corps,
• Indian Reorganization Act of 1934,
• National Industrial Recovery Act,
• Public Works Association,
• Federal Securities Act of May 1993/ Securities & Exchange Commission,
• Home Owners Loan Corporation/ Agriculture Adjustment Administration,
• Tennessee Valley Authority (May 1993),
• Works Progress Administration 1935-1943,
• Farm Security Administration,
• National Labor Relations Act (Wagner Act),
• Fair Labor Standards Act of 1938, and last but not least the
• Social Security Act.
The scope of these programs identifies what it took to address the upheaval brought about by the great depression. Not piecemeal, sound-bite policies, but a broad concerted effort to radically change our society. The question today is whether we have the political will and the public support for such broad welfare programs. If social welfare programs such as those under the “New Deal” are initiated, the funding for these programs will have to be carved from crisis-ridden federal budgets. Remember this is the positive scenario.
With an aging population, as the baby boomers mature into older adults and enter senescence, they leave behind them a vacuum, a shrinking of the younger population—traditionally the working population. Since most services (including Social Security) are funded through existing entitlements with no investment, the working population will have to finance these programs. Again today’s children will be responsible for the aging boomers. In the next decade, these working adults will need to sustain any federal and state programs initiated under the new “New Deal.” The repercussions that will emanate from this era of the fastest social change in history will ultimately fall on our children. Children are responsible.
How likely is this “new” New Deal? Most analysts are relying on new policy initiatives to address the aging of our population, but in recent U.S. history, such attempts have faltered. The “New Frontier” (J. F. Kennedy), “Great Society” (L.B. Johnson), and the “New Covenant” (W.J. Clinton) all failed to be as effective as the legacy of the original New Deal—which won the support of the American people and brought the nation out of depression.
Between these two scenarios lies a path that history will likely thread. The legacy of debt we are accruing cannot be ignored for much longer, primarily because the obligated deficit is so large.
Americans have a looming obligated deficit of $63.6 trillion—a figure which is more then what the entire world produces (Gross Domestic Product-GDP; $61.1 trillion), and about four times then all the products and services we produce in a year in the United States (GDP; $14.6 trillion.) This is the largest single debt in our history.
Largest Debt in the History of Mankind
This number is so large that only a few people think they understand it. Some argue that increasing cost in health care spending and Social Security are the main culprits of this obligated debt. Others point to the growing deficits that we build annually into our federal budget. This year we have added an additional $1.3 trillion to the deficit. If, as some economists predict, our current ailing economy will continue to suffer stresses, then it is imperative to question the legacy that we are leaving our children and grandchildren.
The two largest federal spending obligations are Social Security and Medicare with Medicare being the 5 times larger then Social Security. As of 2009, the obligation for Social Security alone is $7.6 trillion (Medicare is $38.1 trillion).
We euphemistically refer to Social Security—which also applies to Medicare—as a “pay-as-you-go” system. This means that money that we pay today goes to support the benefits of retirees today. Any surplus is spent by the government. For this surplus that the federal government appropriates they provide treasury special issues—known as trust fund bonds that are not real bond however since they cannot be sold or exchanged. Even the interest on these issues are again paid in treasury special issues. The 2009 Social Security Trustees Report : "Neither the redemption of trust fund bonds, nor interest paid on those bonds, provides any new net income to the Treasury, which must finance redemptions and interest payments through some combination of increased taxation, reductions in other government spending, or additional borrowing from the public." This means that these are not funds or bonds, since to pay this money back the government will have to raise, borrow, print additional monies to honor them.
Unlike other countries which invest some or most of their surplus, the U.S. government spends all of it and provides IOUs locked in a four draw filing cabinet, which congress does not have any plans to ever paying back. For the past 40 years Congress has not had the ability stay within budget (apart from 1999 and 2000), it is unlikely that it is capable of paying back four times all of the product and services that we produce back to the Social Security Fund. More telling is that there is no budget plan by Congress to ever do so. This level of debt will also be in context of a much bigger looming obligation, that of Medicare, which makes the Social Security deficit look like short change.
This year, 2010, our annual Social Security surpluses will disappear. Not only do we have to contend with a deficit every year—with no surplus money coming from Social Security—but we have to find money to start paying retirees from sources other than Social Security contributions. The sad part of this story is that we have known this for at least three decades.
The 1982 Greenspan Commission was established to study and make recommendations to Congress on how to solve the Social Security obligations when the baby boomers mature. The recommendation was for a major payroll tax hike to generate Social Security surpluses for the next 30 years, in order to build up a large reserve in the trust fund that could be drawn when the boomers become retirees—now. In effect the baby boomers started funding Social Security for their eventual retirement as well as funding the benefits of the retirees at the time.
This created a surplus for the first time. A surplus that was designed to fund the eventual retirement benefits of the baby boomers. However these surpluses never made it. Started by President Reagan—and followed by all other presidents—this newly establish Social Security surplus, was put into the general fund. As a result, each year’s surplus is spent every year. Each year Congress drains the fund and leaves in its place special issue treasury notes, which cannot be sold, bartered, or exchanged. At different times, three members of Congress expressed public outraged at this practice, these were Senators Daniel Patrick Moynihan of NY, Harry Reid of NV, and Ernest Hollings of SC. What was needed was a law to separate these Social Security surpluses away from the budget so that they do not get spent and instead get invested for the benefit of future retirees. This is exactly the law that President Bush signed in 1990. The Budget Enforcement Act—Section 13301—made it illegal for Congress to use Social Security funds by excluding Social Security from all budgets including the congressional budget. However this law is ignored.
The other part of this double jeopardy concerns Medicare. Medicare by far is the largest federal obligation, and will overshadow all other budget items within the federal government. By 2007, total spending on health care in the United States was $2.3 trillion or $7,600 per person. The percentage of GDP that is spent on national health is projected to continue to increase (from 5.2 percent in 1960 to 20 percent in 2016), which translates to $4.2 trillion. Rising health care costs are an emergent issue especially for the United States. By comparison, Switzerland, Germany and France allocated 11.6, 10.9 and 10.5 percent of their GDP to health. But despite this enormous outlay of resources on health services, nearly 46.6 million Americans remain uninsured. In addition, for those Americans lucky enough to have insurance, these dollars do not translate to better health.
Medicare and Health
While health care costs in the United States are mushrooming—consuming a greater part of our GDP—there exist no comparable improved health outcomes, such as life expectancy. The United States continues to slide further behind other countries in health status. In 1997, the U.S. ranked 15th in mortality. Since then, Finland, Portugal, the United Kingdom and Ireland have reduced their mortality rates from diseases that can be cured (amenable diseases) more rapidly than the United States. All now have better rates than the U.S. 10. Similarly disappointing are results of child well-being, in which the U.S. ranked second to last when compared to 21 countries similar to the United States in terms of their economies.
If U.S. health care costs are not contributing to improved health, where are resources going? International disparity in health care spending results not simply from varying cost of treatment. The United States spends six times more per capita on the administration of the health care system than its peer Western European nations. Moreover, more U.S. health care costs are primarily expended on the dying. The average per capita Medicare spending during the last two years of life on care in the inpatient setting—payments to physicians for inpatient services as well as payments to hospitals themselves—was about $25,000. During the five-year period 2001–05, nearly a third of total Medicare spending—31.7 percent—went toward the care of moribund patients with severe chronic illness during their last two years of life.
Both Social Security and Medicare—ostensibly different and separate program—are comingled with congress placing all surpluses in one big pot which they then spend at the end of each year. These are facts. Both Democrats and Republicans feed from the same through. It is worrisome that reality is so far divorced from people day to day impressions.
In the 2008 report by the Social Security Trustees, they summarized the situation in stark terms by stating that, “Projected long run program costs are not sustainable under current financing arrangements. Social Security's current annual surpluses of tax income over expenditures will begin to decline in 2011 and then turn into rapidly growing deficits as the baby boom generation retires. Medicare's financial status is even worse.” Despite this overwhelming evidence, Americans are becoming MORE optimistic about Social Security’s and Medicare’s future. Some have referred to social security—and by association Medicare—as a ponzi scheme. Its viability depends on an intergenerational exchange. Those that contribute into the system today, pay for all benefits of today’s retirees. Implicit in this arrangement is that future contributors into social security would then pay for the current workers when they retire in the future. This intergenerational exchange is more demanding on future cohorts since the proportion of workers to retirees will decrease. These future cohorts that will bear the biggest responsibility of this spending spree.
The Colored Pyramid Scheme of the Social Security and Medicare Burden
By 2050, minorities—those who identify themselves as Hispanic, black, Asian, American Indian, Native Hawaiian, Pacific Islander or mixed race—will account for 54 percent of the U.S. population (currently 34%), which is projected to total 439 million that year. Among the nation’s children, the trend is even more pronounced so that by 2050, this will jump to 62 percent (compared to 44 percent today).
Immigration is playing a leading role in both the growth and changing composition of the U.S. population, points out the Pew Research Center. It finds that immigrants and their descendants will account for 82 percent of the projected population increase from 2005 to 2050. Nearly 20 percent of Americans will be foreign born in 2050, compared with 12 percent in 2005, the center projects.
On the other side of the Medicare/Social Security equation, one in five people will be 65 and older by 2050 and 59 percent will be White. While by 2050, there will be 19 million people age 85 and older, 67percent will be White .
So the burden of spending the Medicare/Social Security burden will be borne primarily by minorities--and immigrants--for the benefit of the White retirees. Since Congress has never achieved a balanced budget (apart from 1999 and 2000) it is not likely that it is capable of paying back these borrowed surpluses while meeting its current Medicare/Social Security benefit obligation. So it is likely that by the time these younger largely minority cohorts, who have contributed towards the benefits of the emerging baby boomers, get to retire themselves, these benefits will be dramatically reduced. The solvency of Medicare/Social Security can only be achieved by an increase in contributions and/or a decrease in benefits, which will mainly affect the burgeoning minority populations.
This inequity is further exacerbated because of the diminished life expectancy of minorities compared to Whites. Minorities do not receive the same total level of benefits as Whites because they die earlier. Predictions indicated that life expectancy, which has already started to be reduced, will continue to diminish and it will primarily affect minorities. There is also a disproportionate level of contribution from minorities then for White. Because Social Security contribution is capped at $106,800, minorities on the whole contribute at a the full percentage, while the mainly White—and in smaller numbers, Asian—higher earners pay an increasingly smaller percentage the higher their income.
The demographics that determine an uneven playing field are dictating that minorities will pay more into Medicare/Social Security—more minority younger cohorts, higher percentage contribution into the system—and benefit less—shorter life expectancy, and smaller individual contributions.
But the inequity is that minorities depend on social security to a greater degree than Whites. About three-fourths of minority beneficiaries rely on Social Security for at least half their income, while only two-thirds of whites rely on it to the same extent.
Almost half of the minority beneficiaries (45 percent of blacks and 44 percent of Hispanics) relied on Social Security for 90 percent or more of their income, compared with 29 percent of whites. A much higher percentage of minorities relied on Social Security for all of their income; 33 percent of blacks and 33 percent of Hispanics, compared with only 16 percent of whites.
We are witnessing a chronically sick economic system brought about by politicians who are unwilling to address present day economic realities. The narcissism of a political system that does not have to balance its budget and is not held accountable for its excesses has brought us to this quandary in our country. For anyone that has had major physical issues, the prognosis calls for radical change in how we do business.
Changing how we do business
· Eliminate administration. In small business the first mantra that you learn is to cut overhead and to spend more time focusing on the product and less time in administration. The same needs to be true in our economy. Each job position should have an outcome attached. Where there is large number of administrators, health, government or education, administration can be undertaken by exiting faculty.
· Increase health and economic surveillance systems. Although federal agencies are obligated to survey racial and ethnic disparity, they are not motivated to do so. Instead of arguing for the validity of data by racial and ethnic disaggregation, we should impose a true value of data. We can do this by assigning a budget for data collection which is related to the utility of the data. If the data has been utilized by numerous studies and research then their funding should reflect this. Data that is little used will eventually have its budget revoked.
· Education for all. The primary engine for the economy and health is education. Educational opportunities should be expanded to ensure that those who have a capacity to learn have the opportunity to do so, and for those with diminished capacity to offer remedial education for life. School needs to be de-centralized with more public education taken on at libraries, adult enrichment centers, and work settings.
· Eliminate insurance companies from Health Care. At least 24% of every healthcare dollar goes toward insurance firms’ administrative expenses and payment processes. The use of computerized technology–including innovative smart card technology to improve healthcare services–would make middlemen insurers unnecessary.
· Separate funds for Social Security and Medicare. It is important for these funds to go "off budget". Although there are laws that are suppose to ensure that these are not co-mingled with the general fund, politicians have disregarded this. To ensure that this stops, a volunteer board selected from the public, universities, and industry ensures that the funds are separate and accounted for.
· Increase Immigration. Over the long run, a net inflow of immigrants equal to 1% of employment increases income per worker by 0.6% to 0.9%. This implies that total immigration to the United States from 1990 to 2007 was associated with a 6.6% to 9.9% increase in real income per worker. That equals an increase of about $5,100 in the yearly income of the average U.S. worker in constant 2005 dollars. Such a gain equals 20% to 25% of the total real increase in average yearly income per worker registered in the United States between 1990 and 2007.
· Balanced Budget. Require congress to balance the federal budget every year H.J.Res.78, the balanced budget amendment calls for a Constitutional amendment that would require Congress to balance the federal budget each year. It should also require states to balance their budget. This does not mean that either states or federal government cannot borrow. Borrowing is one method of getting out of economic depression. What would be different is to ensure that there is a step-by-step plan to pay back any monies borrowed.
Conclusion
As with most terminal diagnosis the prognosis might be repugnant for most, but these interventions are necessary in order to truly change the way we are doing business in America. By definition, changing how we do business NEEDS to be radical in order to be effective, in order to bring about change. It is a legacy that we need to promote. By making such sacrifices, we will gain pride that we have successfully passed the baton to our more diverse children .
As with most terminal diagnosis the prognosis might be repugnant for most, but these interventions are necessary in order to truly change the way we are doing business in America. By definition, changing how we do business NEEDS to be radical in order to be effective, in order to bring about change. It is a legacy that we need to promote. By making such sacrifices, we will gain pride that we have successfully passed the baton to our more diverse children .
