The Growing Gap in Life Expectancy by Income Implications for Federal Programs and Policy Responses (2015) / Chapter Skim
Currently Skimming:
2 Population Aging in a Heterogeneous Society
2 Population Aging in a Heterogeneous Society
Pages 17-36
The Chapter Skim interface presents what we've algorithmically identified as the most significant single chunk of text within every page in the chapter.
Select key terms on the right to highlight them within pages of the chapter.
From page 17... ...
life expectancy rose by 32 years from 1900 to 2012, and fertility has remained near or below the replacement level of 2.1 births per woman since the mid-1970s. For decades, the large baby boom generations kept the population relatively young, but now they are moving into older ages and will usher in rapid population aging over the coming decades.
|
From page 18... ...
WHY POPULATION AGING HAS IMPORTANT ECONOMIC CONSEQUENCES The macroeconomic consequences of aging depend in part on consumption and saving responses and in part on labor supply. One simple metric with which to evaluate the impact of population aging on consumption comes through the weighted support ratio of hypothetical earners to hypothetical consumers; roughly speaking, this ratio provides a proxy for the earnings capability of workers relative to society's consumption needs.2 The weighted support ratio for the United States is projected to decline by 12 percent between 2010 and 2050.
|
From page 19... ...
. Evidently both population aging and the tilt in the age profile of consumption contributed to this increased share of aggregate consumption, and these two demographic pressures will intensify in the coming decades.
|
From page 20... ...
NEED FOR ENTITLEMENT REFORM Another dimension of the effects of population aging is its impact on the federal budget through the major U.S. entitlement programs.
|
From page 21... ...
Instead, the committee's focus is on the causes of the growing historical and projected gap in life expectancy among people with different long-term earnings histories, the effects of that growing gap on the distribution of benefits under the major entitlement programs, and the implications of the growing gap for some possible policies to address the fiscal sustainability problem. These issues would be important topics even if the nation's long-term fiscal imbalance did not exist.
|
From page 22... ...
. Although actual and projected life expectancy has continued to rise in recent decades, the gains have been different for different population subgroups, as this report explores in Chapter 3.
|
From page 23... ...
. THE FUTURE ELDERLY MODEL The social science literature features several well-known and complementary approaches for measuring population health and projecting future disease burden and mortality (see, for example, Manton et al., 1993; Lee, 2000; Hayward and Warner, 2005)
|
From page 24... ...
For instance, it supports simulation of taxes and of Old-Age, Sur vivors, and Disability Insurance benefits, Supplemental Security Income benefits, Medicare and Medicaid eligibility, and out-of-pocket expenses, but unfortunately MINT does not include simulation of actual Medicare and Medicaid benefits received.
|
From page 25... ...
The model was used to estimate and project a set of average outcomes given the policy environment that persisted over the period for which data were observed; within that policy environment, we then focus on how a change in the mortality gradient affects outcomes under Medicare, Medicaid, Social Security, and other entitlement programs.4 It is important to note that the FEM takes a "reduced-form" approach. That is, it does not directly model the behavioral 3 Further information on the FEM may be found at https://roybalhealthpolicy.usc.edu/fem/ [August 2015]
|
From page 26... ...
Because we focus mostly on how net benefits change when the mortality gradient changes, rather than the level of such net benefits, including taxes paid at age 50 and beyond does not fundamentally alter any of the key findings of this report relative to studying benefits by themselves.7 For that same reason, including taxes paid before age 50, even if that were feasible within the FEM, would have almost no effect; if the focus is how mortality changes after age 50 affect net benefits, then including taxes paid before age 50 would have no effect. (In other words, including taxes paid before age 50 would affect the level of lifetime net benefits but would not have any appreciable effect on the change in those lifetime net benefits as mortality after age 50 changed.)
|
From page 27... ...
Table 2-1 describes the differences in cohorts with these different health status assumptions. Estimating Mortality Analysis of the effect of the mortality gradient on lifetime benefits requires the full association of mortality and lifetime income class without taking into account the health conditions that may lead to the mortality differentials.
|
From page 28... ...
Estimating Health Status The FEM contains a transition module to calculate the probabilities of entering and exiting various health states and the likelihood of various financial outcomes. The module takes as inputs risk factors such as smoking, weight, age, and education, along with lagged health and financial states.
|
From page 29... ...
Estimating Health Care Spending The committee estimated health expenditure using data from the Medical Expenditure Panel Survey and the Medicare Current Beneficiary Survey. We imputed earnings quintile for respondents in these two surveys using a model estimated on the HRS.
|
From page 30... ...
In summary, we are not able to calculate the full generational accounts for each generation under the different mortality regimes and policy scenarios, as was done by Auerbach and colleagues (1991) , because we lack taxes paid before age 50.
|
From page 31... ...
2. Government income transfers include income from the three largest income transfer programs: Social Security, Disability Insurance, and Supplemental Security Income.
|
From page 32... ...
For lifetime computations, all benefits and taxes are discounted by 2.9 percent annually. Estimating Progressivity The committee was charged, among other tasks, with analyzing how the "growing gaps in income and life expectancy affect national public programs such as Social Security, Medicare, and Medicaid." To do so requires some measure of how gaps in income and life expectancy affect benefits under those programs.
|
From page 33... ...
The FEM takes a cohort of Americans at age 50 -- each of 11 The charge was to construct generational accounts differentiated by lifetime income or education for this purpose. Because the committee concluded that the FEM was the most appropriate model for purposes of the study task but that model lacks taxes paid before age 50, the committee was not able to construct full generational accounts.
|
From page 34... ...
Other Eligibility Age Baseline scenario 62 67 Current SS Policya 65 Exp. 1: Increase EEA to 64 67 Current SS Policy 65 64, keep NRA at 67 Exp.
|
From page 35... ...
where BP2 is the median and remove benefits AIME above it Exp. 7: Raise the 62 67 Current SS Policy 67 Medicare eligibility age to 67 aUnder current SS policy, PIA = 0.90*
|
From page 36... ...
The committee then asked how salient changes in policies surrounding Social Security -- and to a lesser ex tent Medicare -- would impact lifetime outcomes. For example, we asked, "How would changing the normal retirement age for Social Security affect lifetime net benefits?
|
Key Terms
This material may be derived from roughly machine-read images, and so is provided only to facilitate research.
More
information on Chapter Skim is available.