The Cutting Edge™ - August 2003
Baby Boomers March Towards Medicare
By John Satagaj, WMMA Legislative CounselI recently started taking my first (knock on wood) prescription drug for a sustained period of time. I am dealing with a common American affliction known as high cholesterol. My doctor tells me it could be a lifelong experience. Now multiply my experience by a factor of about 70 million. The answer is also the answer to the question why the debate over providing subsidies for prescription drugs for Medicare recipients is something we should all pay attention to.
The debate is not about the current Medicare population. It is about us baby boomers and what this means for the future. I contend this decision is right up there with the creation of the Social Security system and the creation of Medicare itself in terms of what it could do to our nation and economy. I am not saying we shouldn't do it, but it does mean we should do it right the first time.
According to the Congressional Budget Office, from 1970 to 2010, the number of Americans ages 20 to 64 is projected to increase by nearly 80 million; the elderly population by 2010 will have grown by about 20 million, or roughly one-fourth as much. In contrast, for the period 2010 to 2030 – when the baby-boom generation will retire--the number of working-age individuals is projected to grow by about 10 million, whereas the population ages 65 and older will increase by 30 million, or three times as much. The consequence of those diverging patterns is that the ratio of the elderly population to the population in its prime working years – which stood at 19 oercent in 1970--is projected to grow from 21 percent today to 35 percent by 2030. The ratio is then expected to continue to climb (albeit at a slower rate) and could reach 42 percent in 2075. In other words, the shift to an older society will accelerate as the baby-boom generation retires, and it will persist afterwards, making the changes that the nation faces--and their implications for the spectrum of federal tax and spending policies--more than just temporary.
Nationally, health care expenditures as a percentage of GDP have more than doubled over the past several decades, growing from 7.0 percent in 1970 to 14.8 percent in 2002. On a per capita basis, national spending for health care (in 2002 dollars) increased from $1,321 in 1970 to $5,366 in 2002, or at an average rate of about 4.5 percent per year--which is about 2.4 percentage points faster than the growth of the underlying economy. The factors contributing to the trend in real (inflation-adjusted) per capita health care spending include expansions in insurance coverage, rising income, medical price inflation in excess of general inflation, and the aging of the population--but the major impetus has been the development and diffusion of new medical technology. At the same time, it should be noted that improvements in that technology--while costly--have increased the health care system's potential to deliver high-quality care. If the adoption of new technology is driven by the needs of patients, the value of those improvements may well exceed their cost.
The Henry J. Kaiser Family Foundation, one of the most respected sources of information on health care, tells the story of the prescription drug factor. Almost a quarter (23 percent) of Americans under age 65 in 1996, and more than a third (38 percent) of Medicare beneficiaries in the fall of 1999 had no prescription drug coverage. Most nonelderly Americans without drug coverage have no health insurance at all. Seniors lack drug coverage because Medicare does not cover outpatient prescription drugs, and because they do not have or cannot afford a private policy that supplements Medicare with drug coverage. Lack of drug insurance can have adverse effects. Drug prices paid by those without drug insurance were on average about 15 percent higher than for those with insurance in 1996 (excluding rebates from drug manufacturers to health plans). A recent survey found that 27 percent of the uninsured said they needed a prescription drug but did not get it, compared to 10 percent of the insured. Medicare beneficiaries without drug coverage used fewer prescriptions compared to those with drug coverage (17 vs. 25 prescriptions).
U.S. spending for prescription drugs was $140.6 billion in 2001, more than tripling since 1990. Although prescription drug spending is a relatively small proportion (11 percent) of personal health care spending, it is one of the fastest growing components, increasing at double-digit rates in each of the past 7 years. National prescription spending increased 16 percent from 2000 to 2001, compared to a 9 percent increase for physician and clinical services and an 8 percent increase for hospital care.
Both the House and Senate have passed Medicare prescription drug bills. Each has a price tag in the $400 billion over 10 year period neighborhood. The key issues are whether private insurers will have a prominent role in the new program and whether Medicare recipients should be nudged into a managed care system for all of their Medicare services. A conference committee has been convened to develop a compromise bill. When Congress returns in September we will see whether they have they political willpower to complete the assignment.
