Chapter 6

FEDERAL OUTLAYS BENEFITING THE ELDERLY

Since 1960, the share of the Federal budget spent on programs serving the elderly has nearly doubled. In 1960, less than 15 percent of the Federal budget was spent on the elderly. In fiscal year 1986, programs benefiting the elderly accounted for 26 percent of the Federal budget, down from 28 percent in fiscal year 1984.

The long-term increase in the share of the budget spent on the elderly has occurred primarily because of legislated improvements in income protection, health insurance, and services which were enacted in the late 1960's and early 1970's in an effort to reduce high levels of poverty among the elderly. At the same time, the focus of spending on aging programs has shifted. Retirement income has declined as a percent of Federal spending. Today, twothirds of the budget for the elderly is spent on retirement income as compared to 90 percent in 1960. Health care spending, in contrast, has become an increasingly significant element of Federal spending. For example, spending on health programs for the elderly as a proportion of all Federal spending on the elderly has increased from 6 percent in 1960 to an estimated 29 percent in 1986 (chart 6-1 and table 6-1).

Source: Executive Office of the President, Office of
Management and Budget, 1986

TABLE 6-1.-FEDERAL OUTLAYS BENEFITING THE ELDERLY: 1984-86 1

TABLE 6-1.-FEDERAL OUTLAYS BENEFITING THE ELDERLY: 1984-86 1-Continued

1 Much of the data used to compile this table is based on unsubstantiated estimates and preliminary program and demographic information. Most estimates are for recipients age 65 and over, include the effects of proposed legislation such as COLA freeze, and include rough estimates of the effect of Gramm-Rudman-Hollings on fiscal year 1986 outlays. Some federal programs (e.g., consumer activities, USDA extension services, national park services) have been excluded due to lack of data.

2 Fiscal year 1984 outlays reflect an 11-month benefit period.

3 HUD defines "elderly" beneficiaries as households with head of household 62 and over.

4 Financing changed from loan guarantees to direct loans resulting in one time fiscal year 1985 outlay increase in Public Housing.

5 Reflects net disbursements for new direct loans.

6 Includes nutrition assistance to Puerto Rico

7 Based on 30 percent of total program obligations.

8 Drop in unemployment rates and associated reduction in outlays causes the decrease between fiscal years 1984-85.

9 Total federal outlays includes items categorized as off-budget before fiscal year 1985.

Source: Executive Office of the President, Office of Management and Budget, February 1986.

Only excessive increases in the cost of health care threaten to further expand Federal spending on the elderly. Forecasts of the costs of pension and health care programs over the next 50 years indicate that the share of the budget devoted to pension spending will decline somewhat and remain below current levels in the future. On the other hand, without some change in the method of financing, the share of the budget devoted to health care spending will continue to rise and may eventually surpass the cost of pensions.

FEDERAL SPENDING FOR THE ELDERLY

MOST FEDERAL SPENDING FOR THE ELDERLY IS FOR SOCIAL SECURITY AND MEDICARE

In fiscal year 1986, an estimated $269.5 billion of Federal spending was of direct benefit to older Americans. Of every dollar spent on the elderly through the Federal budget in that year, 54 cents went to Social Security and 27 cents went to Medicare and Medicaid.

Social Security and all but a portion of Medicare are financed through dedicated taxes collected expressly and exclusively for the purposes of paying retirement and health benefits. In the last two decades alone, increases in social insurance benefits have helped to cut the poverty rate among the elderly in half-from 28.5 percent in 1966 to 12.2 percent in 1988. The 1985 poverty rate of 7 percent for families headed by older persons would have risen to 39 percent if Social Security and other transfer payments were not available. Likewise, the poverty rate for older unrelated individuals would have increased from 26 to 27 percent. Seven of every 10 older families who would have had incomes below the poverty level without

such benefits in 1985 were raised above the poverty line by transfer payments.1

The Federal Government also provides pensions and compensation in exchange for services provided by citizens to the government. It provides disability compensation and pension benefits to veterans of military service and to its own former employees and their survivors 65 years old or older. About 12 cents of every Federal dollar spent on the elderly in fiscal year 1986 went to support these programs.

A third area of Federal involvement with the elderly is in providing means-tested benefits to elderly poor people who are unable, despite the existence of a universal social insurance system, to meet basic subsistence needs. About 4 cents of every dollar spent on the elderly in fiscal year 1986 was expected to be used to provide Supplemental Security Income (SSI) benefits, housing, food stamps, energy assistance, and social services to low-income individuals.

The fourth area of Federal spending on the elderly includes programs of general benefit to the elderly such as social, nutrition, and employment services provided through the Older Americans Act, research conducted through the National Institute on Aging, and volunteer services through the ACTION agency. Less than 1 percent of the elderly's share of the Federal budget is spent on these programs.

COSTS TO INDIVIDUALS AND FAMILIES INCREASED FEDERAL SPENDING FOR HEALTH CARE HAS NOT REDUCED HEALTH COSTS TO OLDER AMERICANS

While the enactment of Medicare triggered the most rapid growth in Federal spending for the elderly, it has not effectively reduced the burden of health care costs for the elderly and their families. From a program spending $7.5 billion in 1970, Medicare has grown to a program with $98.5 billion in projected Federal outlays in 1989.2 Since 1975, Medicare outlays have increased at an average annual rate of 15 percent, more than twice the rate of inflation and one-fourth faster than the growth in national personal health care expenditures.3 Even with savings measures enacted in the 1980's, Medicare is still projected to grow at twice the rate of inflation or more through the end of the decade.

Despite this growth in annual spending, Medicare payments increasingly fail to keep pace with rising health care costs. Health care expenditures not paid by Medicare have been rising steadily as a percent of elderly income. By 1984, health care spending not paid by Medicare equaled 15 percent of the average per capita income of a person 65 years or older. The elderly pay one-fourth of

1 U.S. Bureau of the Census. Unpublished data from the March 1986 Current Population Survey.

2 U.S. House of Representatives, Committee on Ways and Means. Background Material and Data on Programs Within the Jurisdiction of the Committee on Ways and Means (1989).

3 Health Care Financing Administration, Office of the Actuary, Division of National Cost Estimates. "National Health Expenditures, 1986 to 2000." Health Care Financing Review, Vol. 8, No. 4 (August 1987).