University of St' Thomas

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University of St. ThomasNational Institute
of Health PolicyThe Federal Budget Landscape
Demographic ChallengeHealth Policy SeminarG.
William HoaglandOffice of the Majority
LeaderU.S. SenateMay 7, 2006
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• Global Demographic Aging
• The world stands on the threshold of a
  demographic revolution -- global aging.
• Global aging will wreck the economy of any nation
  that fails to prepare --even our own.
• Global aging poses the greatest threat to Japan
  and Europe. The United States, with its younger
  population and more dynamic economy, is
  comparatively better positioned to confront the
  challenge.
• BUT, the U.S. unrestrained entitlement explosion,
  especially in health care, can destroy our global
  competitiveness.

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Fertility Rates Have Fallen Below Population
Replacement RatesAverage Number of Childbirths
Per Female
Replacement Rate 2.1
Source UN 2004
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Life Spans In The Developed Countries Have Risen
Dramatically Over The Past Half Century
Age
Source UN 2004
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The Fiscal Challenge

• The FISCAL challenge of rising retirement costs.

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Government Spending On Old-age Benefits Will
Double As A Share Of GDPPublic Pensions and
Health Care Benefits as of GDP
GDP
Source EC / OECD (2001) and CSIS (2002)
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The Labor Challenge

• The FISCAL challenge of rising retirement costs.
• The LABOR challenge of a graying and shrinking
  workforce.

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Size of the Working-Age Population Will Shrink
Dramatically in Rapidly Aging CountriesGrowth
of Working Age Population (Ages 15 to 64) from
2005 to 2050
Source UN 2004
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The Growth Challenge

• The FISCAL challenge of rising retirement costs.
• The LABOR challenge of a graying and shrinking
  workforce.
• The GROWTH challenge of stagnant or declining
  markets.

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Countries With Slowly Growing Workforces May Have
Slowly Growing Economies
2006
Source Goldman Sachs 2003
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The Geopolitical Challenge

• The FISCAL challenge of rising retirement costs.
• The LABOR challenge of a graying and shrinking
  workforce.
• The GROWTH challenge of stagnant or declining
  markets.
• The GEOPOLITICAL challenge of demographic power
  shifts.

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Advantage The U.S. Is The Youngest Of The
Developed Nations
of Population Age 60 and Over
Source UN 2001
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China
India
2006
United States
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If Demography Is Destiny, Global Leadership May
Pass From The First To The Third World
Source UN 2001
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Americans are Getting Older( Age 65 and older)
2006
Source Social Security Administration
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Percentage of American Population Age 60 and Over
Source UN 2001
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Advantage U.S. Seniors Are Less Dependent On
Government For Their Income
Public Benefits as a Percent of After-Tax Elderly
Income
All Households
US
Canada Sweden Netherlands UK France Italy Germa
ny
35 42
57
54
50
67
59
61

Source CSIS 2003
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Advantage U.S. Seniors Work Longer And Retire
Later Than Seniors In Most Developed Countries
Labor Force Participation Rate of Older Men 2000
Source OECD 2001
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BUT, the U.S. Must Overcome Real Obstacles

• The worlds most expensive health-care system.
• An entrenched entitlement ethos, a powerful
  senior lobby, and growing political gridlock.
• Large gaps in private pension coverage.
• Fallout from the retirement crisis overtaking the
  rest of the developed world.

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• Summary
• We live in an era defined by rapid technological
  change, uncertainty, and global challenges
  (terrorism, natural disasters).
• None is as certain as global aging.
• None is likely to have such a large and enduring
  effect on the shape of national economies and the
  world order.

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2005
of GDP
Revenue 17.5
Entitlements
Source GAO August 2005 Analysis
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Entitlements on Auto Pilot
of GDP
Revenue 17.5
Source GAO August 2005 Analysis
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Entitlements on Auto Pilot
of GDP
Revenue 17.5
Source GAO August 2005 Analysis
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• Current Entitlement Policies
• Lead to exploding federal deficits and increased
  debt.
• Put economic well-being and standards of living
  of future generations at risk.
• Lead to much higher tax burdens, unsustainable
  public borrowing, or deep reductions in other
  critical activities including national defense,
  education, infrastructure, and homeland security.

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• By refusing to address the long-term structural
  entitlement imbalance, baby boomers and older
  generations are preserving improvements in their
  own standards of living and passing the bills on
  to their children and grandchildren.

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Medicare Is Much Larger Unfunded
LiabilityEstimated Expenditure in Excess of
Income, 2005-2079 ( T)
29.9 T
Part A 8.8
T
Part B 12.3
5.7 T
Part D 8.6
Source 2005 Financial Report of the U.S.
Government, Department of the Treasury
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Public Benefits by Program and Age, 2000
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Education, Medicaid and All other Expenditures As
a Percentage of Total State Spending
Highways, etc.
Source National Governors Association
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Medicare goes Bankrupt Before Social
SecurityTrust Fund Assets Social Security and
Medicare
Social Security Trust Fund
Medicare HI Trust Fund
2006
Spending exceeds income (2005)
Trillions
Trillions
Spending exceeds income (2018)
Trust Fund depleted (2020)
Trust Fund depleted (2042)
Source Office of Management and Budget, 2005
Medicare Trust Fund Trustees Report, SSA