13 - Clearly, Medicare is facing problems with rising health care costs as well. Between 1977 and 1988, Medicare costs for the elderly grew from $713 per capita to $2,303 per capita a rate that is just slightly slower than the rate of growth for elderly out-of-pocket costs. The Medicare data for 1987 and 1988 shows Medicare costs continuing to grow over one and one-half times faster than the Consumer Price Index (CPI-W). For the two primary payers of elderly health care, the elderly themselves and Medicare, health care costs have been and continue to be growing at very high rates and show no sign of a significant slowdown. The signs for slowing Medicare cost growth have improved due to aggressive cost cutting over the past decade. However, no one is sure of the consequences of that cost cutting for health care access and quality. For the elderly, there has been no progress since federal cost containment efforts fail to control many of their costs. 14 SLOW GROWTH IN ELDERLY INCOME In order to provide a better perspective on the problem created by rapidly rising health and long term care costs, there is a need to look at what is happening to the elderly's ability to pay these costs. Since health and long term care costs increases show little sign of slowing down, it is also important to look at both the past and the future. Though some elderly are already in severe difficulty, the future is likely to be even more problematic. SOCIAL SECURITY COST-OF-LIVING-ADJUSTMENTS. Social Security, a primary source of income for millions of current and future elderly, ties its annual cost-of-livingadjustments (COLAs) to the Consumer Price Index for Urban Wage Earners (CPI-W). Since 1978, Social Security COLAS have fluctuated greatly as has general price inflation. (See Figure 2.1 and Table 2.1) COLAs have ranged everywhere from as low as 1.3 percent to as high as 14 and 11 percent in 1980 and 1981 respectively. For the 1977 through 1990 period, the COLA averaged 6.1 percent annually. In the President's 1991 budget proposal, the Administration estimates that the COLA for the upcoming year will be 3.9 percent and the projected average for 1991 through 1995 is 3.7 percent. While the Social Security COLA has kept pace with general inflation, questions remain over how well the COLA measures change in elderly costs. As one prime example, health care costs have consistently outpaced inflation (as noted above) and are likely to do so in the future. SOCIAL SECURITY MONTHLY BENEFIT PAYMENTS. Another way of looking at changes in the elderly's ability to pay is to look at average monthly Social Security payments for retired workers. (See Figure 2.1 and Table 2.1) Over the 1977 through 1988 period, there has been growth, but again at a relatively slow rate. Between 1977 and 1988, the average monthly Social Security benefit for all of those in current-pay status (i.e., all those receiving payments in that year) slightly more than doubled from $243 per month to $537 per month. 15 FIGURE 2.1 - TRENDS IN SOCIAL SECURITY COST-OFLIVING ADJUSTMENTS FOR 1977 THROUGH 1995 AND AVERAGE MONTHLY SOCIAL SECURITY PAYMENTS TO RETIRED WORKERS FOR 1977 THROUGH 1988. $600 $500 Monthly Social Security Payments $400 $300 $200 $100 77 78 79 80 81 82 83 84 85 86 87 Year Average Awarded A Avge Current-Pay Source: U.S. Social Security If one looks at monthly benefits for those beneficiaries awarded Social Security benefits in a given year, the growth is slower. In part, this is due to the fact that retirees in the late 1970s and very early 1980s received slightly higher Social Security payments than those retiring after 1981. Between 1977 and 1988, the average monthly benefit awarded slightly less than doubled, as it grew from $255 per month to $505 per month. For those years, the average rate of growth was 6.5 percent annually. Over the past seven years, the average rate of growth was substantially less for average monthly benefits awarded (3.4 percent annually) and for the general rate of inflation (3.6 percent annually). 88 16 SOCIAL SECURITY COST-OF-LIVINGADJUSTMENTS AND PAYMENTS FOR 1977 THROUGH TABLE 2.1 * Projections as published in the President's "Budget of the United States Government, Fiscal Year 1991." SOURCE: U.S. Social Security Administration, 1990. PUBLIC AND PRIVATE PENSIONS. With respect to public and private pensions, considerably less information is available to describe changes over time. What is known about pensions indicates that less attention is given to keeping pace with regular inflation, let alone health cost inflation. Anecdotal data and older studies suggest that most private pensions do not have automatic cost-ofliving-adjustments. In fact, private pension adjustments that are made are often below regular inflation. 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. |