Lifespan, Social Security, and Medicare
By Arnold Kling
We find that the prospects for longevity are considerably brighter than currently expected by the Social Security Administration. This is good news for the baby boomers and only modestly bad news for the Social Security trust fund since more people are also expected to survive through the working ages, meaning a larger-than-expected number of taxpayers in the future. But there is considerable uncertainty about the state of the Social Security trust fund; stochastic simulations for the year 2070 show a 95 percent confidence interval with a range of $54 trillion!
…Thus the many proposals to ‘‘fix’’ Social Security and Medicare in expected value terms can still result in empty trust funds should the projections be wrong. For example, one proposed fix—an immediate 2 percentage point increase in the Social Security payroll tax—still leaves a 75 percent chance of the Social Security trust fund going bankrupt before 2070
To me, this argues for changing the structure of these programs to reduce their sensitivity to intergenerational demographic trends.
The authors point out that better health among the elderly has two effects on health care spending, one favorable and one adverse. The favorable effect is that at any given age, people now require less health care. The unfavorable effect is that more people live to ages that require large expenditures, particularly for nursing homes.
For Discussion. What other factors affect the trend in health care spending among the elderly?