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By Robert J. Samuelson
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Welcome To The 21ST century, where older Americans will work longer and their government checks will be smaller. By tackling Medicare, Congress is finally confronting the essence of the "entitlement problem" -- spending on the elderly-and the implications extend well beyond the next budget. We are entering an era of generational politics that will ultimately redefine what it means to grow old in America. Ever since the New Deal, we have envisioned old age as "the golden years." We have pursued policies intended to allow people, by their 60s, to retire, relax and enjoy their grandchildren. What's obvious now is that this concept of old age can't survive indefinitely. It's simply too expensive.
Sooner or later, government benefits for older Americans will be trimmed, and most people will have to work longer or mix work and retirement. Fundamentally, we are victims of our success. Older Americans have never been healthier, wealthier or more independent than they are now. In 1948 nearly half of men older than 65 had jobs; by 1994 only 16 percent did. In the past quarter century the incomes of those older than 65 have risen faster than the incomes of those younger than 65. But the public costs of supporting the older population, mainly through social security and Medicare, are becoming oppressive. They now constitute a third of federal spending, and by the time the baby boom hits 65 in 2011, they will be unaffordable in their present form.
To call this the onset of generational politics is not to predict generational war, though one could happen. Clearly, today's elderly receive a huge cross-generational subsidy. Their benefits are paid for by their children. This is, potentially, an immense political fault line. Payroll taxes--the main financing for social security and Medicare--already exceed income taxes for three quarters of families. But the matter is much more complicated than just mutual antagonism. The feelings across generational lines are more of frustration than of anger. In general, today's retirees recognize that the anxieties of younger Americans about social security and Medicare are realistic. In general, baby-boom and Generation X workers know that today's retirees depend critically on these programs.
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Consider a recent survey of voters for the American Association of Retired Persons (AARP). In it, fully 55 percent worried that the country could no longer afford social security; 45 percent felt the same way about Medicare. And the willingness to cut had risen sharply since 1985 (from 14 to 32 percent for Medicare). Yet about 90 percent of the respondents rated the programs as essential for the elderly. Most Americans feel torn between accommodating existing expectations about retirement and adjusting to new economic and population pressures that are making those expectations unrealistic. The central question of generational politics is simple: will we trim programs for the elderly slowly and gracefully, or will we wait so long that the adjustments are abrupt and harsh?
The significance of the clash over Medicare is that it is finally flushing these conflicts out into the open. Until recently, mentioning "budget deficit" and "the elderly" in the same breath was considered political suicide. Now we are grudgingly conceding the need to overhaul these formerly sacrosanct programs. Prodded by Republicans, the Clinton administration has proposed its own Medicare-spending cuts. Ross Perot has published a new book urging Medicare reform, including higher copayments by beneficiaries to promote cost consciousness. Sens. Bob Kerrey and Alan Simpson have advanced a bipartisan plan to alter social security that would gradually raise the eligibility age for normal benefits to 70 by the year 2034. (Under present law, the eligibility age rises slowly to 66 in 2009 and to 67 in 2027; the Kerrey-Simpson plan would further increase retirement ages for almost everyone now younger than 50.)
All these proposals pose once off-limits questions. Who's old enough for benefits? How much should the elderly pay for their retirement? What's "fair" among generations? Medicare only emphasizes the difficulty of finding palatable, answers. Between 1996 and 2002 the Republicans would trim projected spending by $270 billion. As they say, this would simply slow Medicare's annual growth from 10 percent to 6.4 percent. In 1994 it spent about $160 billion. Without changes, that's projected to be $345 billion by 2002. Republicans would hold spending to $247 billion in 2002, up 54 percent from 1994. Surely, they say, that won't ravage Medicare.
Well, say critics, it could. Liberal health economist Karen Davis of the Commonwealth Fund contends that such a slowdown can't be achieved without "radical" measures. Every possible change is potentially controversial. The riskiest politically is raising the direct payments of recipients, through either higher premiums for Medicare doctors' insurance or higher copayments for services. The monthly premium is already $46.10 and covers 31 percent of the cost of doctors' insurance (Medicare Part B); the rest is paid from general government funds. Other changes could be equally controversial. Trying to push more Medicare beneficiaries into HMOs--through, for example, much higher copayments for "fee for service" Medicare--might backfire. Even the whiff of coercion that people might lose "free choice" of doctors helped doom President Clinton's health reform in 1994.
In truth, no one has a guaranteed formula for controlling Medicare costs. Believers in "managed care"--relying on HMOs and other networks of doctors and hospitals--cite a recent survey by Foster Higgins, a consulting firm. The survey reported a 1.1 percent decline in private-employer health costs per worker in 1994; this dramatically reversed previous double-digit cost increases. The main reason for the change was a huge shift of workers to managed care. But even Foster Higgins isn't confident that the savings represent anything more than a one-time gain. Managed care's absolute costs may be lower than those of fee-for-service medicine, but annual rates of increase may be similar.
One reason health spending rises so stubbornly is a constant increase of new medical technologies and treatments. Each one effectively creates its own mini-Medicare program. Open-heart surgery was hardly known in the early 1970s. Then it exploded. Between 1976 and 1998 the number of bypass operations jumped from 12,000 annually to 260,000 (table, page 41). As procedures are perfected, more patients receive them. Between 1976 and 1986 the number of knee replacements rose 112 percent, from 54,210 to 114,659. No one wants to deny people the benefits of better, even if more expensive, medicine.
It is precisely because the issues are so fundamental--as fundamental as which operation you might get--that the first skirmishes of generational politics could end in stalemate this year. Perhaps Republicans will try to squeeze too much. Perhaps Democrats will disdain compromise in order to champion the elderly. But though generational issues can be deferred, they cannot ultimately be avoided. They are made inevitable by three trends:
In 1900 life expectancy was 47 at birth and, if you lived to age 65.77; in 1993 it was 76 at birth and 82 if you hit 65. Meanwhile, retirement ages have fallen. In 1993 about 52 percent of new social-security recipients took their benefits at 62; another 17 percent took them at 63 and 64.
In 1955 defense spending and veterans benefits accounted for almost 70 percent of federal outlays. By 1995 their share was 19 percent. In the same period social security and Medicare (which didn't exist until 1965) went from 6 percent to 34 percent of the budget. Under present trends, their share would rise to 39 percent by 2005, projects the Congressional Budget Office.
Between 2010 and 2020, the older-than-65 population will rise by about a third; in the next decade, it will rise almost another third. Today, about one in eight Americans is older than 65; by 2030, the proportion is projected to be one in five. The older-than-85 population will rise even faster.
Together, these trends doom social security and Medicare in their present form. The required tax burdens would be horrendous. In 1993 Americans devoted about 7 percent of their national income (gross domestic product) to social security and Medicare. By 2030 that would almost double--to about 13 percent of GDP--to support existing programs, estimates economist Eugene Steuerle of the Urban Institute. Even after the baby boom retires, workers (the main taxpayers) will outnumber retirees. It's doubtful they would tolerate such a huge increase. In today's dollars, it would be about $420 billion annually. Cutting other government programs to avoid higher taxes seems equally implausible. Even eliminating all defense spending wouldn't be enough. And borrowing the necessary amounts would mean deficits three to four times larger than today's.
None of these possibilities looks politically or economically viable. As a nation, we face the daunting task of revising policies that seek to subsidize people at ever-younger ages. Government programs and their underlying assumptions haven't kept pace with the changing status of older Americans. In 1935, and even in 1965, being old was almost taken as an automatic sign of economic and physical need. Private pensions and health insurance were meager. People who couldn't earn their way were often thrown on the mercy of families or friends--or languished in poverty.
These stereotypes no longer fit. More older Americans than younger Americans say they're comfortable financially. Only 11 percent of those older than 65 are dissatisfied with their financial well-being, compared with 27 percent of those between 25 and 64, reports the National Opinion Research Center. One reason is that many costs are typically gone: work expenses, child-rearing expenses and mortgage payments, to name just three. About three quarters of older Americans own their homes, often with no mortgage. Poverty rates for the old are lower than for the young; per capita incomes are almost as high.
The physical transformation of older age is as important as the economic. Drugs and surgery have alleviated many chronic conditions of aging, from cataracts (poor vision) to angina. Since 1987 regular exercise-jogging, working out--among those older than 55 has increased 45 percent, reports American Sports Data, a market-research firm. "When I was a kid, 40 was middle-aged, 50 was old and 60 was dead," says ASD president Harvey Lauer. "Now, 65-year-old kids are taking care of 85-year-old parents, and a 53-year-old like me runs around a track."
It is not that the elderly have suddenly become a fabulously wealthy and physically fit juggernaut plundering their offspring. Though the degenerative process has been delayed, it hasn't been repealed. Nearly half of those older than 65 develop arthritis; people older than 85 are five times more likely than those between 65 and 69 to need help with shopping, money management and other daily activities. Nor are the elderly so rich that they don't need social security or Medicare. It is precisely these programs that underpin their well-being. By itself, social security provides about 40 percent of income for Americans older than 65.
The point, more simply, is that "the elderly" aren't the same cliched monolith that inspired social security and Medicare. Not everyone is impoverished or incapacitated. Abstractly, it's easy to imagine how public programs could be revised. "If people are living longer, they should work longer," says Dr. Robert Butler, the first head of the National Institute on Aging. "It's good for society, and it's also good for people." According to Butler, numerous studies indicate that older people with structure in their lives--and jobs provide that--do better. They live longer and are healthier.
We could be edging away from "the golden years" toward the "amber years." More older Americans would mix work and retirement, just as many students now mix work and schooling and many mothers mix jobs and parenting. In fact, polls indicate that many older Americans favor a less rigid division between work and retirement. Government benefits could also be trimmed for the more well-to-do-a recognition that being older is no longer synonymous with being "needy."
The problem is not imagining a plausible and humane future; it is (as always) getting from here to there. Practical obstacles are huge. At present, not many companies have programs that allow workers to work less--or part time--as they age. Indeed, "downsizings" have prompted many firms to induce or force workers to retire earlier. And when older workers leave career jobs, they may lose health insurance before they're eligible for Medicare. Between 1989 and 1993 the number of Americans between 45 and 64 without health insurance rose from 5.5 million to 6.9 million, reports the Employee Benefit Research Institute.
As Butler points out, higher retirement ages also wouldn't be fair to people whose bodies have broken down and who simply can't work any longer. To make later retirement ages more palatable, these anxieties--about health insurance and disability--might have to be relieved. But the larger political hurdle is making any changes to existing benefits. It is here that the generational strains emerge starkly. On the one hand, existing retirees tend to cling fiercely to all existing benefits. The mere hint of cuts can arouse moral indignation. People feel entitled: they "earned" their benefits (it's said) through past "contributions" that were invested.
On the other hand, today's workers are paying for benefits that many, if not most, of them probably won't receive in their old age. The more they pay, the harder it is to save for their retirement. Worse, the more these issues are deferred, the harder it is to know what the rules will be when they do retire. What will a normal retirement age be? How generous will Medicare and social security be? Government programs not only set rules but also send signals to people about how they should prepare for the future. But the signals now are muddled.
Making them clearer will require breaking out of the cocoon of denial that historically separates programs for the elderly from the larger problems of the budget. The denial often rests on myths. It simply isn't true that the "contributions" (via payroll taxes) of today's retirees were invested and are now being returned; even if they had been invested, they wouldn't in most cases cover today's benefits. But they weren't invested. Both social security and Medicare are pay-as-you-go programs; today's taxpayers support today's retirees. Between 1937 and 1993 social-security taxes for retirement and survivors benefits totaled nearly $3.9 trillion; about 85 percent of them had been paid out as benefits.
Even Republicans concede that their Medicare proposals--whatever they are--won't come to grips with the larger questions posed by the aging of the baby boom. That's understandable. All the pressures of an aging society are too immense and complicated to be settled in one, two or even three debates. They include (aside from social security and Medicare) pension policy, age discrimination and long-term care. The trouble is that if we can't talk about modifying today's benefits, we can't tackle the bigger problem of modifying tomorrow's. And the longer changes are put off, the harder and more jarring they will be.
What is really at stake in the struggle over Medicare is the character of generational politics. It is whether we can really break out of denial and deal civilly with the stresses of an aging society. For all the pitfalls--and opportunities for political grandstanding--the seeds of consensus exist, Almost no one advocates an abrupt withdrawal of benefits from today's retirees; almost everyone senses that those benefits can't last forever. Can we begin to change? If so, we will have made a huge leap into a less contentious 21st century. If not, watch out.
Expensive medical procedures for the elderly have skyrocketed. The rate per 10,000 elderly for three heart operations: Catheterization Bypass surgery Angioplasty 1976 15.2 5.3 -- 1980 32.6 15.0 -- 1986 94.7 42.9 7.1 1993 148.0 79.2 52.1
SOURCE: NATIONAL CENTER FOR HEALTH STATISTICS
Due to improvements in health care and quality of life, average life spans continue to grow.
YEARS OF LIFE MEN WOMEN 1900[a] 46.3 48.3 1950 65.6 71.1 1960 66.6 73.1 1970 67.1 74.7 1980 70.0 77.4 1990 71.8 78.8 1993[b] 72.1 78.9
a BASED ON 10 STATES AND THE DISTRICT OF COLUMBIA, AGE 65 DATA FROM 1990-1902 PERIOD.
b PROVISIONAL DATA, SOURCE: NATIONAL CENTER FOR HEALTH STATISTICS
Federal spending on the elderly has risen dramatically -- and with an aging population, the cash flow will only increase.
Social Security and Medicare Defense Interest Other 1965 14% 43% 7% 36% 1995 18% 18% 15% 33% 2005 14% 14% 16% 31%
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