Aging Society

The share of the population that is elderly is rising rapidly in developing countries because the baby boom generation is aging. The 2000 census reported that 12.4%[Page 15] of the U.S. population was age 65 or older. This figure is projected to rise to 18.5% in 2025. Most elderly people live on a limited budget while facing declining health and rising health care expenditures. The working-age population must save in advance for retirement while raising children and perhaps serving as caregivers for aged parents. There is also concern that the increasing needs of the elderly may reduce resources for the nonelderly, particularly children. The aging society will be influenced by public policies that provide for the health care and economic well-being of the elderly. Evolving factors in the private sector will also influence future cohorts of elderly people.

The Medicare program represents the largest source of public funding for the purchase of medical care for the U.S. elderly. People age 65 and over are entitled to receive most inpatient and outpatient care, subject to a set of annually declared deductibles and copayments, along with modest monthly premium rates for ambulatory services. In 2000, Medicare expenditures reached $224 billion, just over 2% of gross domestic product (GDP). These expenditures are projected to reach 4.5% of GDP in 2030, and the trust fund that covers Medicare payments for hospital care is projected to go into deficit in 2031.

Medicare expenditures have grown rapidly, in part because of the development and diffusion of increasingly sophisticated medical technologies. Policymakers hoped the introduction of Medicare HMOs would restrain cost growth. Although Medicare managed care enrollment has increased substantially, total program costs continue to escalate. If Medicare expenditures continue to rise rapidly, policymakers will be forced to limit access to certain costly health care interventions for Medicare beneficiaries, increase payroll taxes used to finance the system, or increase deductibles, copayments, or premiums for Medicare recipients.

The Medicaid program provides the largest source of public funding for long-term care (LTC) in the United States. Each state administers its own Medicaid program with partial funding from the federal government. Although only 10% of Medicaid recipients are age 65 and over, this group accounted for 29% of Medicaid expenditures in 1998. Elderly individuals qualify for nursing home care under the Medicaid program if their income and asset levels fall below certain thresholds, which vary across states. Limited Medicaid resources have led to low reimbursement to nursing homes for Medicaid patients in some states and to concerns regarding the quality of care that Medicaid nursing home patients receive. Less than 10% of Americans ages 55 to 64 have purchased private LTC insurance. Most aging Americans appear to view the Medicaid program as their source of LTC insurance. Subsidizing the purchase of LTC may save costs for governments in the long run, if such policies reduce future Medicaid expenditures. However, this possibility has not been proven.

Rising expenditures on outpatient drugs among the elderly have led to calls for government intervention in this health care sector. Policymakers are considering expansion of the Medicare program to include coverage for outpatient prescription drug costs. Other policy options include price controls in the brand-name drug sector, reimportation of drugs from other countries which have lower prices, and policies that encourage price competition from producers of cheaper generic drugs.

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