17 In the case of Federal retiree pension programs, the prospect for an annual cost-of-living-adjustment is uncertain. To take the most recent example, the 1991 President's budget proposes to give civilian and military retirees no COLA for 1991 and to have future COLAS tied to the overall consumer price index minus one percent. The recent trend for private pension coverage is one of little growth. While the elderly who retire today and in the next several years have relatively high rates of pension coverage, the prospect for later generations is less bright. Further, employer contributions to pension plans are not as high as several years ago. In the near term, a larger proportion of elderly will have private pensions which will be relatively substantial when they retire. For the longer term, two problems emerge. First, the elderly who retire today or in the next few years will see a rapid erosion of the value of their pensions relative to the cost of health and long term care. The elderly retiring in the decades ahead may not have as high a rate of coverage or as high of a starting point for pension payments. In either case, these retirees will lose ground as they spend ten to thirty years in retirement with pensions not keeping pace with overall inflation or with the higher health care cost inflation. MEDIAN INCOME FOR ELDERLY OVER AGE 70. Beyond Social Security payments and pensions, a way to look at elderly income is to focus on median income (the income level at which one-half the elderly earn more and one-half the elderly earn less) and on the older elderly, those aged 70 and above. This older group is more likely to face higher health and long term care costs with less income. Median income for persons aged 70 and over in 1988 was $8,557, considerably less than the mean elderly income in 1988 of $13,131. (See Figure 2.2 and Table 2.2) In recent years, the rate of growth in the median income figure has kept pace with the elderly mean income figure. At least one reason for this is because the group retiring in the late 1970s and very early 1980s received slightly higher Social Security payments. However, the prospects for the future are not as bright, since the group that was just entering their 70s after 1981 generally received lower Social Security payments. 18 FIGURE 2.2 TRENDS IN ELDERLY MEAN AND MEDIAN INCOME FOR 1977 THROUGH 1988. Though growth in median income for those aged 70 and above has been similar to growth in mean income for those aged 65 and above, three problems are indicated for the future. First is the fact that one-half of older elderly about fourteen and one-half million people have incomes under $8,557 per year, leaving them very little margin when it comes to health and long term care costs. Secondly, the primary reason this level has gone up is because a slightly wealthier cohort of elderly have moved into this age group. The next cohorts are unlikely to be as well off. Third, even if these people are better off coming into their 70s, they are likely to live another decade and consistently be losing ground as their incomes fail to keep pace with overall inflation and health and long term care cost inflation. 19 TABLE 2.2 - INCOME OF ELDERLY PERSONS FOR 1977 THROUGH 1988. ELDERLY MEAN INCOME. Another view is provided by examining mean (or average) income per person aged 65 and older, a figure that has increased steadily in recent decades and reached $13,131 in 1988, as compared to $5,855 in 1977. (See Figure 2.2 and Table 2.2) Over the period between 1977 and 1988, elderly mean income rose at an average annual rate of 7.7 percent -- about a one and one-half percent higher rate than for Social Security increases and overall inflation. As has been the case with Social Security and overall inflation, the rate of increase has slowed in recent years. Over the most recent fouryear period (1985-1988), the annual rate of increase in mean elderly income averaged 4.2 percent -- just slightly higher than the 3.6 percent for overall inflation. 20 ELDERLY MEAN INCOME AS COMPARED ΤΟ PHYSICIAN MEAN INCOME. While elderly mean income has experienced some growth in the 1980s, mean incomes for physicians, a primary source of health care for older Americans, has grown much faster. Starting from a level of $89,900 in 1981, average physician net annual income rose to $144,700 in 1988. (See Table 2.3 and Figure 2.3) During the same period, elderly mean annual income went from a level of $8,738 in 1981 to $13,131 in 1988 and is only one-eleventh the level of physician net income. Over the seven year period (1981-88), average net physician income, for all physicians combined, increased by 61 percent. Three physician specialties (surgery, radiology, anesthesiology) grew at even higher rates ranging from 69 to 81 percent for the 1981-88 period. General and family practice physicians only increased 32 percent over this period. As a group, the surgeons were among the fastest growing and were the highest paid, reaching a 1988 average net income of $207,500. TABLE 2.3 PHYSICIAN MEAN NET INCOME AND ELDERLY MEAN INCOME FOR 1981 THROUGH 1988. SOURCE: Bureau of the Census, 1990; and "Socioeconomic Characteristics of Medical Practice 1989," AMA, 1990. |