SOCIAL SECURITY AND HEALTH CARE

LECTURE – ISSUES

In the U.S., persons 65 years or older number more than 12% of the population—that is close to one in every eight Americans.

In 2009, the 65-74 age group was 8 times larger than in 1900. The 75-84 group was 12 times larger. The 85+ group was 22 times larger.

The median age in 1850 was 18.9. Now it is about 37.

The growth of the older population in the U.S. has contributed to a variety of economic issues.

Aging

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Age Distribution USA

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Social Security Also known as Old-Age, Survivors, and

Disability Insurance (OASDI).In the U.S., Social Security and Medicare are

financed by a payroll tax. The Federal Insurance Corporation of America

(FICA) charges equal portions of the tax to the employer and to the employee.

The FICA tax rate is 6.2% on the first $97,500 of earnings for the social security contribution and 1.45% on all earnings for the Medicare contribution.

Social security tax revenues exceed 11% of personal income.

Social security expenditures have risen more rapidly than any other government program. Social security outlays are currently about 7% of GDP, whereas national defense is about 5.5%.

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Concerns About Social Security

The money raised from the social security tax is used to purchase government bonds to pay for general government expenditures.

The amount paid into the social security system by an individual is far less than the amount received by that individual in retirement benefits.

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Alternatives to Address Concerns about Social Security

Increasing taxes.Increasing the eligibility age. The age

at which individuals can start collecting Social Security has been increased from 59 to 67 for those born in 1960 or later.

Means testing or not paying social security benefits to anyone earning above a certain level of income.

Holding down cost-of-living increases.

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Healthcare Spending

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More US Health Care DataHealth Care Expenditures

Nursing Homes and

Home Health Care, 9%

Prescription Drugs, 10%

Program Admin, 7%

Dental, Vision, Misc., 22%

Physicians, 21%

Hospitals, 31%

Sources of Funds

Medicaid, 15%

Medicare, 20%

Military, Other Public Insurance,

13%

Other Private

Expend., 7% Copayments, Deductibles, etc., 12%

Private Health

Insurance, 33%

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More US Health Care Data

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Health EconomicsGovernment spending on healthcare,

through programs like Medicare and Medicaid, constitutes 45% of the total spending.

Medicare is a federal healthcare program for the elderly and the disabled.

Medicaid is a joint federal-state program that pays for health care for poor families, the neediest elderly, and disabled persons.

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Demand Increase The aging of the population stimulates the

demand for health care.

The Financing Mechanism--For demand to increase, the aged must be able to pay for it. The emergence of Medicare and Medicaid in 1966 gave many elderly the ability. Rising income

New medical technologies provide the very sick with increased opportunities for survival. Defensive medicineMedical ethics

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The Market forMedical Care: Demand Shift

The demand for medical care has increased, shifting the demand curve to the right, as a result of the aging population, the financing mechanism, and the new and expensive technologies being employed.

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SupplyEven if the demand curve for medical

care was not shifting out rapidly, the cost of medical care could be forced up by a leftward shift of the supply curve.

The supply curve shifts up if the cost of producing medical care is rising.

The three largest resources in the medical industry in terms of total expenditures are hospitals, physicians, and nursing homes.

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The Market forMedical Care: Supply Shift

Only a small fraction of the cost of hospital care is paid by patients. The bulk comes from third parties, of which the government is the most important. Third-party payers refers to insurance companies and government programs. Rising physician fees and the prices of drugs have also added to the rising cost of medical care.

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Economic Implications of Rising Costs

Reduced access to careLabor market effects

Slower wage growthPart-time and temporary workersOutsourcing and offshoring

Personal bankruptcies Impact on government budgets

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Prescription Drugs Prescription drug

expenditures have grown by an annual average of 15% since 2000.

• What are some of the issues

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Other Issues• Are we healthier?• Too much spending?• Limited access

– The uninsured