V.  The Forces Driving Future Entitlement Growth

Table of Contents/Entitlement Report/Introduction/Foreward/I/II/III/IV/V/VI

Chart 5-1. The first force driving the coming cost explosion: longer lifespans.

Each year SSA and HCFA publish projections of Social Security and Medicare costs according to scenarios reflecting a range of possible future economic and demographic trends. Currently, they publish three such scenarios (I, II, and III). The higher the scenario number, the more unfavorable the trends--at least in terms of their implications for Social Security's (or Medicare's) actuarial balance. Thus, for instance, Scenario III assumes lower fertility and lower productivity than Scenario II--but greater longevity gains. Since Scenario I is routinely dismissed by experts as implausibly optimistic, these charts depict only the second two scenarios, with "low-cost projection" designating Scenario II and "high-cost projection" Scenario III. Source: Social Security Area Population Projections: 1991, Actuarial Study 106 (SSA; February 1992), Table 10; and 1993 Annual Report of the Board of Trustees of the OASDI Trust Funds, Table II.D.2.

Chart 5-2. The second force driving the coming cost explosion: earlier retirement,...

Average age of Social Security retirement means age at which covered workers elect to receive Social Security (OASI) benefits. Data before 1965 are for five-year intervals; intervening years are interpolated. Source: Annual Statistical Supplement to the Social Security Bulletin: 1993 (SSA; 1993), Table 6.B5; and various earlier editions of the Supplement.

Chart 5-3. ...which means shrinking elderly labor force participation.

See chart 5-1 for explanation of low-cost and high-cost projections. Projections of labor force participation rates are averages of SSA's Scenarios II and III. Source: Economic Projections for OASDHI Cost and Income Estimates: 1992, Actuarial Study 108 (SSA; December 1992), Table A.4; and unpublished labor force projections underlying the 1993 SSA scenarios (supplied by SSA's Office of the Actuary).

Chart 5-4. The third force driving the coming cost explosion: a long-term trend toward lower birth rates.

See chart 5-1 for explanation of low-cost and high-cost projections. The total fertility rate for a given year is the average number of children that would be born per woman over her lifetime if she were, at each age, to exhibit the age-specific birth rates of women in that given year. From a low of 1.74 in 1976, the U.S. total fertility rate rose to 2.06 in 1991. Many demographers, however, believe that this rise is the result of a one-time anomaly: a surge in age-specific birth rates among women now in their mid- to late thirties combined with a simultaneous trend toward earlier first births among women now in their twenties. The SSA low-cost and high-cost projections, in which total fertility is trended downward toward "ultimate" rates of 1.9 and 1.6 (respectively), are thus consistent with the assumption that the recent rise in the U.S. total fertility rate is unlikely to mean a permanent rise in actual "completed cohort fertility." Source: Ansley Coale and Melvin Zelnick, New Estimates of Fertility and Population in the United States (Princeton; 1963); Social Security Area Population Projections: 1991, Actuarial Study 106 (SSA; February 1992), Table 3; and 1993 Annual Report of the Board of Trustees of the OASDI Trust Funds, Table II.D.2.

Chart 5-5. By the year 2040, we may have only three worker paychecks to support every two Social Security benefit checks.

See chart 5-1 for explanation of low-cost and high-cost projections. Since 1975, and the entrance en masse of the "Baby Boom" generation (born from the mid-1940s to mid-1960s) into the labor market, the ratio of Social Security beneficiaries to covered workers has been stable at around 30. With the relatively small "Silent" generation (born from the mid-1920s to mid-1940s) now retiring, it will not rise much above its current level before 2005 to 2015--when the first Baby Boomers reach their sixties. Source: 1993 Annual Report of the Board of Trustees of the OASDI Trust Funds, Table II.F.18.

Chart 5-6. While the elderly population is projected to grow very rapidly, the working-age population will grow only slowly.

See chart 5-1 for explanation of low-cost and high-cost projections. Source: Unpublished population projections underlying the 1993 SSA scenarios (supplied by SSA's Office of the Actuary).

Chart 5-7. Along with the growth in the total number of elderly, the average age of the elderly will also climb.

See chart 5-1 for explanation of low-cost and high-cost projections. See chart 5-6 for source.

Chart 5-8. This "aging of the aged" will mean rising per capita elderly health-care costs...

Personal health-care spending differs from national health-care spending in that it excludes the cost of program administration, the net cost of private insurance, public health activities, and research & construction. Medicaid includes state spending. Source: Daniel Waldo, "Health Expenditures by Age Group: 1977 and 1987," Health Care Financing Review, (Summer 1989).

Chart 5-9. ...and give an added boost to the fourth force driving the coming cost explosion: health-care hyperinflation.

Estimates and projections for the years 1993 and 2000 are from the latest available CBO projection of national health expenditures through 2000. Projections for the years 2010, 2020, and 2030 are from a 1992 long-term HCFA projection of national health expenditures (normalized in the year 2000 to the more recent CBO projection). Source: "National Health Expenditures: 1991," Health Care Financing Review, (Winter 1992); "National Health Expenditures Projections through 2030," Health Care Financing Review, (Fall 1992); and Projections of National Health Expenditures: 1993 Update (CBO; October 1993).

Chart 5-10. The fifth force driving the coming cost explosion: slow productivity growth--and thus a slowly growing tax base.

See chart 5-1 for explanation of low-cost and high-cost projections. In both projections, productivity is assumed to stabilize at an "ultimate" rate attained in 2003. Source: Economic Projections for OASDHI Cost and Income Estimates: 1992, Actuarial Study 108 (SSA; December 1992), Table A.10; and unpublished productivity assumptions underlying the 1993 SSA scenarios (supplied by SSA's Office of the Actuary).