In 10 years, the federal government will spend half its budget (not counting interest on the debt) on those aged 65 and older. The inexorable aging of the Baby Boom generation means that a growing share of federal spending will be used to support older adults—mostly for health care and retirement benefits.
As CBO importantly notes, it is misleading to think of this trend simply as a transfer of tax dollars from younger people to older people. Without this federal spending, the burden of caring for parents would fall even more heavily on their children. In effect, we are socializing some of the costs of aging. That was an important choice the US made when it created Social Security in the 1930s and Medicare in the 1960s. But it also has critical implications for US fiscal policy as the Boomers continue to age.
Social Security and Medicare
According to a new report by the Congressional Budget Office, the federal government spent about one-third of its budget on seniors in 2005 (see pages 12-14). By last year, the share grew to 40 percent, or $1.5 trillion. And by 2029, it will rise to half of all non-interest spending, or about $3 trillion. To put it another way, the government will spend about 10 percent of the nation’s Gross Domestic Product on older adults. In 2005, it spent about 6 percent.
Nearly all of that 2029 spending–$2.7 trillion by CBO’s reckoning—will come from two programs, Social Security and Medicare. The main reason: The number of older adults will increase by 30 million between 2010 and 2030.
The CBO may be understating future spending on seniors. First, it assumes that the cost of programs such as Meals on Wheels and the Older Americans Act will not increase relative to spending for other government programs whose funds are appropriated each year by Congress.
Long-term services and supports
While that has roughly been true in recent years, the growing number of older adults, and especially the rapid increase in the old-old, will boost demand for social services. A new study by the Commonwealth Fund describes the burden faced by those who are living with cognitive or functional limitations.
And there is a second reason: The likelihood that the federal government will need to put more resources into long-term services and supports for frail elders, as well as younger people with disabilities. Half of all Americans over 65 have a high level of need for personal care services. And we do not have enough private savings or insurance to finance this assistance.
Today, Medicare covers medical treatment for older adults but only limited long-term services and supports. The Older Americans Act also provides only modest—though important–benefits. And while Medicaid does provide long-term care services, it only does so for those who are very poor.
The aging Boomers will drive some increase in Medicaid spending. But while CBO projects that overall program spending will increase from $389 billion in 2018 to $702 billion in a decade, most of that growth likely will result from the increasing needs of the non-elderly. The major reason: Rising costs to support younger people with disabilities.
It is what it is
While observers will tempted to debate whether the big increase in spending for the elderly is a good thing or bad thing, characterizing it either way seems pointless. It is, rather, what it is: the inevitable result of an aging population and increasing health care costs (for everyone, not just seniors). Our society will need to support a growing population of frail seniors. The question is: How?
We can respond in one of only four ways:
- We can cut government spending for older adults just as many need help the most. If we do, we will impose greater burdens on those who need care and their families.
- We can continue to increase government spending and borrow the money to fund it, a choice that will divert more resources to paying interest on the debt and limit the ability of the economy to grow.
- We can raise taxes to finance this growing need, something the nation has been unwilling to do.
- Or we can respond with some mix of the first three.
But we need to acknowledge the reality that supporting an aging population will cost money—a lot of it. We can carry that burden as individual families or collectively. But we cannot ignore it.