CEPR - Center for Economic and Policy Research


En Español

Em Português

Other Languages

Home Publications Blogs Beat the Press An Aging Population and Drying Paint: Things People Worry About in Washington

An Aging Population and Drying Paint: Things People Worry About in Washington

Thursday, 21 March 2013 13:45

From reading the newspapers and blogs you would think everything must be great in the country. Hey, no problems of mass unemployment, poverty, folks losing their homes, etc. How else can we explain the obsession with an aging population?

Yes, the population is aging, just as it has been aging over the last century. Yeah, we're living longer. You got any bad news for me?

Today we have Kevin Drum and Ezra Klein giving us the bad news. It seems Medicare's costs are projected to increase by 2.5 percentage points of GDP over the next 22 years and most of this (1.7 percentage points) is due to aging, not excess health care cost growth. Should we be worried?

Let's look at a somewhat different graph than the one they highlight.


Source: Congressional Budget Office.

What this graph tells us is that Medicare's costs, measured as a share of GDP, increased as much in the last 22 years as they are projected to increase due to aging in the next 22 years. The rest of the increase (0.8 percentage points) is due to projected excess health care cost growth. In other words, the impact of aging alone is no more of a problem going forward than the increase in Medicare costs was for us in the last 22 years. The reason that the total cost growth is projected to be greater is entirely due to the projections of excess health care cost growth.

There are a couple of other points to be made. We would cut our health care costs roughly in half if we paid as much for our health care as any other wealthy country. This would seem to argue for increased trade in health care services. Currently the Obama administration is negotiating major trade agreements with both the European Union and with Asian countries in the Trans Pacific Partnership. How much do you want to bet that more trade in health care services is not on the list of items being addressed? When it comes to doctors and other health care providers our Washington elite types are as hard core Neanderthal protectionist as they come.

The other point is that if workers got their share of projected productivity growth over this period, wages would be around 40 percent higher in 2035 than they are today. How much do you want to bet that workers would prefer before-tax wages that are 40 percent higher with another 2 percentage points pulled out for Medicare, than stagnant wages and no tax increases?

In other words, why are serious people wasting time over this nonsense? There is much more at stake in controlling health care costs and ensuring that workers get their share of productivity growth than there is with aging.

Comments (11)Add Comment
Dopey Seniors:Shut Up and Take Your Medicine From Nurse Ratchet - High Prices
written by Last Mover, March 21, 2013 3:10
This is the problem with seniors these days, acting like irresponsible teenagers who just left home, jumping into the golden years with wanton abandon to spend them on the government dime paid by their children. Really, it's right out of One Flew Over The Cuckoo's Nest.

Have they no shame? No responsibility? No respect for others? Look at them, trying to take their medicine IN CONSTANT REAL DOLLARS to make it look like aging doesn't bust the budget.

Enough. Come out and line up with your hands up and your mouth open wide for PRICE INCREASES and a lecture on AUSTERIAN HEALTH CARE from Nurse Ratchet for trying to SHIFT RISING COSTS ON INNOCENT YOUNGSTERS!
written by skeptonomist, March 21, 2013 5:32
Dean again commits his usual massive non sequitur: other countries pay half as much as we do for health care, so the solution is to do the opposite of what they do, and strive for a more "free-market" system. The countries with the lowest costs generally have the most centralized systems, in which prices are dictated by the government or settled by negotiation with the government, not in an open market. Does Dean not notice that conservatives also claim that a true "free market" is the real solution to reducing costs? Even if Dean has the true secret to making markets work, agreeing that the market is the solution is playing into the hands of the opponents of real reform. You want a "free market"? They'll give you one, on the terms of big business.
written by watermelonpunch, March 21, 2013 5:38
One wonders what they imagine would be a good solution to combat this problem of people aging.
Perhaps suicide centers like in Soylent Green?
Or maybe they think we should get rid of medicare, pass a law legalizing forced euthanasia of elders for people who don't want to look after their aging parents, grandparents & relatives?

Only a truly low moral human culture would see caring for their elders as something bad. Don't we still live in a civilization? Or am I dreaming & it's now every youth for himself?
Ezra's argument
written by Charlie, March 21, 2013 9:45
was demographics, not aging. There is a bulge related to the boomer generation, but in the long term, that will pass and the primary problem is rising costs for services in the long run. The rising costs are also about half of the problem in the short and medium term.

You'd think they just discovered the baby boomers are aging and will eventually all be retired, then dead.
The point
written by David, March 21, 2013 10:16
Skeptonomist once again misses the point. Ever heard of Judo?
We might also lovwer costs by training more doctors in the US
written by Rachel, March 21, 2013 10:46

And we might save money by making basic prevention more specialized, less doctor-dominated.

But a basic political problem is that most people don't appreciate that costs of labor, machinery and drugs are seriously overpriced in the US Even after deducting for malpractice insurance and education costs, medical labor is still overpriced. And these prices are the main cause of our spending problem.

Yet even in a centralized system, how could we lower costs without dealing with this? I believe I recall Jon Gruber and Wm Hsiao telling Vermont, for whom they were designing some Health Care for All plan, that keeping doctors wealthy was one of their requirements. And I assume they wouldn't want their patent-holding friends to lose any money either. And how could they hurt a big hospital chain, or an imaging center? So unless the voters recognize that labor costs and patents and hospitals are part of the problem, and pressure the politicians and their agents, it seems that the only way to save money is to not live as long.
expensive health care means fewer doctors
written by David, March 22, 2013 8:33
Maybe there are more medical school graduates then there are residency positions in part because because incompetent private healthcare businessmen can't seem to figure out how to build affordable teaching hospitals. not that the medical malpractice lawyers are helping the matter.
do us all a favor
written by Mark, March 22, 2013 8:38
The very serious people obviously would like it if the populace would promptly expire as soon as "they" have extracted all of our useful labor/ideas/ingenuity. Like milk-giving cows that have gone dry after 20 years of reliable service, we should most properly expire quickly (until someone figures out how to make soylent green on the cheap). Retirement? Dignity? What's that?
written by Jeffrey Stewart, March 22, 2013 9:25
"In other words, why are serious people wasting time over this nonsense?" -D. Baker

One answer to your question is that Ezra Klein isn't a serious person unless you mean "Very Serious" person like someone that chuckles on TV with Rachel Maddow that Republicans don't know President Obama wants to cut Social Security. He's a well paid stenographer for the capitalist class and their political minions and no friend of the working class, elderly and poor.
written by liberal, March 23, 2013 8:56
Rachel wrote,
Even after deducting for malpractice insurance and education costs, medical labor is still overpriced.

It's a big problem, but just as big a problem is that the medical system doesn't try to get optimal health care outcomes. It rather tries to maximize revenues (think pointless procedures).
now that Europe has been exposed....
written by pete, March 24, 2013 10:38
For like 40 years they got away with huge welfare payments...now the bill is coming due...If you take a snapshot, sure, they look great....and of course, our SEIU/Blue Cross system (these wrote the "affordable care act") will probably be better in 5/10 years than that.

Most folks ignore that the real issues are that 1) Health care consumption does not have positive utility. Health care consumption is human capital maintenance....kind of like depreciation. 2) Human capital in some sense has a positive income elasticity...wealthy societies like the U.S. will clearly strive to preserve human capital. Health care will necessarily rise as a fraction of GDP. Heck, with continuted GDP growth as Dean assumes, health care should be 50% of GDP in like 50 years. Why not? What else will we be spending this massive wealth on, other than trying to stay alive?

Write comment

(Only one link allowed per comment)

This content has been locked. You can no longer post any comments.


Support this blog, donate
Combined Federal Campaign #79613

About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.