The Cost of Growing Old, Research Paper Example

The Cost of Growing Old: An Examination of the Economic Aspects of Aging

America is getting older. Thanks largely to improvements in health care, people are living longer than at any other time in history. The aging population is putting increasing strains on the economy, as the costs of caring for this burgeoning elderly population continue to grow.  Government programs such as Medicare and Social Security, charged with caring for the elderly, will continue to face growing pressure on their budgets and their abilities to deliver services to this growing population. Predictions about how effectively these and other programs and resources will adapt to the shifting demographic trends range from “cautiously optimistic” to “dire.” This paper will briefly examine these program as well as other aspects of the growing cost of aging.

In the United States, one of the primary issues that come to mind when considering the economic aspects of aging is the future of Social Security. Launched in the aftermath of the Great Depression, Social Security was a form of “social insurance” designed to aid the elderly who could no longer work. Upon signing the legislation in 1935, then-president Franklin D. Roosevelt said:

“We can never insure one hundred percent of the population against one hundred percent of the hazards and vicissitudes of life, but we have tried to frame a law which will give some measure of protection to the average citizen and to his family against the loss of a job and against poverty-ridden old age.” (ssa.gov, 2010)

The Social Security program levied a tax against the earnings of workers, and then began paying out benefits when workers reached retirement age. Early recipients of Social Security often received total benefits that far outweighed the amount they had contributed into the program. This imbalance was not particularly problematic at the program’s advent, as the number of people paying into the system outweighed the number of people collecting benefits (ssa.gov, 2010). As our population ages, however, these demographics are shifting; the number of people receiving benefits is growing at a time when the number of people paying into the system is diminishing (ssa.gov, 2010). The significance and potential consequences of these changes are matters of debate, with some forecasting only moderate strains on the system and others predicting its imminent collapse.

Paul Hsieh, of Capitalism Magazine, refers to Social Security as a
”Ponzi Scheme” ( a  fraudulent investment operation that pays returns to separate investors from their own money or money paid by subsequent investors, rather than from any actual profit earned), and warns that the system is headed for bankruptcy (2008). He discusses some possible scenarios that may arise if Social Security does indeed collapse, including a new program of individual retirement accounts that would be managed at least in part by the government. Hsieh foresees the possibility that the government may even take over private retirement accounts and 401(k) plans and “fold them into” these new government-controlled accounts. As a staunch capitalist, Hsieh predictably (and perhaps rightly) asserts that the individuals’ right to maintain control of their accounts morally outweighs and supposed right of “society” to acquire those funds for the greater good (2008).

In contrast to such a worst-case scenario view, there are those with a rosier outlook on the future of Social Security. A report issued by the Social Security Board of Trustees asserted that, while the recession has had a negative effect on the program in short term, the long-term prospects of Social Security are still somewhat positive. They report that the costs of Social Security, such as paying benefits and funding administrative costs, will outstrip the tax revenue coming into the program for the years 2010 and 2011. Despite this shortfall, they indicate that earlier predictions that the program will remain solvent at least through the year 2037 remain accurate. The report indicates that some adjustments may need to be made to the program to fund its continued solvency, such as the possibility of increasing taxes or other forms of revenue (Corbeil, 2010).

In addition to payroll taxes, Social Security is funded in several ways. One notable source of revenue for the program is through interest earned on the so-called “Social Security Trust Fund” (this term is somewhat misleading, in that there is no real “trust fund” put aside specifically for Social Security. Rather, these numbers are simply accounting measures, used when the federal government calculates its budget for each fiscal year). The federal government borrows against the funds designated for Social Security, paying the borrowed money back with interest. In addition to these two sources, portions of the federal income tax are set aside for Social Security (Corbeil, 2010)

Two ways that Social Security could be adjusted to maintain solvency for a longer period would be by making cuts to benefits or by increasing the age at which benefits begin to be paid (or both). Needless to say, there are many who do not favor such measures, citing the notion that such moves could unfairly penalize those who have paid into the program for decades, only to find their benefits cut or access to those benefits delayed. Aside from these measures, the only significant remaining measures would be to increase payroll taxes or to increase the proportion of funds allocated from federal income taxes (a move that would likely engender an increase in taxes) or both. These measures are also unpopular to some, and it remains to be seen which of these various measures will be adopted to continue funding Social Security (Corbeil, 2010).

Along with Social Security, there are other significant issues to consider in any discussion about the economics of aging, but none is as significant as that of health care. This is a topic that has received some inordinate attention of late, as President Barack Obama has instituted sweeping changes to the nation’s health care system. With Republicans warning of “death panels” and Democrats warning of the economic damage to Medicare wrought by rising health care costs, the elderly in particular have been a focus of the debate involving health care.

Like Social Security, Medicare was established to aid the elderly population. Also like Medicare, it faces some of the same problems; notably, an increase in the elderly population that skews the ratio of available revenue versus program costs. As is the case with Social Security, there are those who warn of dire consequences ahead for those who rely on Medicare. In the year 1930, only 5% of the population in the United States was over the age of 65; by 1960, this number more than doubled. Thanks to the post-WWII “baby boom,” the rate of growth in the elderly population has expanded greatly, and is projected to top out at almost 75% by the year 2030 (Marcille, 2003).

This expansion in the elderly population places obvious stresses on programs like Medicare. Coupled with the costs associated with a growing population come the costs associated with advances in medicine. Rapidly-changing technology provides a cornucopia of new tests and other diagnostic measures, from CAT scans to genetic testing, as well as constantly-evolving methods of care that, while often providing valuable alternatives to traditional approaches, also come with ever-expanding price tags (Marcille, 2003).

While a serious examination of the issues surrounding the improvement of Medicare are beyond the scope of this paper, it is safe to ay that some of the basic issues involved are not unlike those that affect the future of Social Security. There are a finite number of ways to shore up the program; those include raising taxes, lowering benefits, and perhaps most significantly, making adjustments to the actual nature of the medical care Medicaid recipients undergo (Marcille, 2003).

As with Social Security, not everyone shares the predictions of doom and gloom. While the growth in the number of elderly is inevitable and unquestionable, the expenses involved in caring for this population may not be as fixed and finite as they first appear. One significant factor in health care is in the field of preventative medicine. Along with the knowledge and information that medical science has acquired to help combat disease and injury comes additional knowledge about how to prevent –or at least offset- some diseases and injuries associated with growing older. It is now widely understood, for example, that improvements in diet and an increase in exercise can have marked effects on future health; as the population grows, the “inevitable” declines of aging may not end up being as inevitable as first thought. People are living longer because they are living better, and there are some who believe that advances in preventative medicine are the key to offsetting the potentially staggering costs of caring for the elderly (Marcille, 2003).

Along with programs like Social Security and Medicare, there are myriad other factors to consider when discussing “the economy of aging.” Increases in the cost of living are not just limited to health care; the costs of food, housing, clothing, and all the other typical expenses of living are growing just as –or more- rapidly as the costs of health care. The pressures of the drawn-out recession of the early 21^st Century place additional burdens not just on the elderly but the entire population. It seems certain that we will face inevitable future challenges both individually and as a society where the costs of aging are concerned. As we see that preventative medicine is a key component of managing future health care costs, so too is “preventative budgeting” a key component of managing the economy of aging. The measures we take now, both as individuals and as a society, will, for better or worse,  likely determine not just our future physical health, but our fiscal health as well.

References

Marcille, J A, Editor (2003, September). The Future of Medicare. Managed Care Magazine, 12(9), Retrieved from http://www.managedcaremag.com/supplements/0309_medicare_future/0309.medicare_future.pdf

Cohen, B D., Managing Editor, (2010). Health costs of aging. Retrieved from http://harvardscience.harvard.edu/directory/programs/health-costs-aging

Hsieh, Paul. (2008, November 18). The Future of social security?. Capitalism Magazine, Retrieved from http://www.capitalismmagazine.com/politics/social-security/5359-The-Future-Social-Security.html

Corbeil, Lark, Managing Editor, (2010, August 10). Public news service. Retrieved from http://www.publicnewsservice.org/index.php?/content/article/15351-1

Historical background and development of social security. (2010). Retrieved from http://www.ssa.gov/history/briefhistory3.html