• Time for another “demography is destiny” lesson

    There is an often-repeated claim that retiring baby boomers have a lot to do with future increases in federal spending, which is itself dominated by Medicare spending. There is something to it, but not as much as one would think. This graph, produced by Peter Orszag, shows it:

    Medicare Spending

    About this graph, I once wrote,

    The bottom area shows how much Medicare spending would grow if health care costs stayed fixed. That is, it is only a function of population aging. This is the “demography is destiny” part. The top area is growth associated with health care cost inflation, fixing the population as it was in 2007. This is growth purely due to health care costs. The middle area is the cost growth associated with increasing health costs applied to newly entitled individuals, those added to Medicare rolls after 2007. One could argue whether this is attributable to population growth or health care cost growth. It’s both. But the fact is, if health costs per person didn’t grow this band would cease to exist.

    Today Paul Krugman adds an important point. Even if the aging population is not the main driver of costs, it is a bigger factor in deficits because it has an effect on revenue.

    First and most obviously, the baby boomers are retiring. Look at the old-age dependency ratio. For the past 20 years we’ve had about 21 Americans over 65 for every 100 Americans between 20 and 64. But by 2020 that number will rise to 27.5; by 2030 it will rise to 35.

    Somebody has got to pay for what Medicare beneficiaries use. In large part it has been younger workers. That’s likely to continue, though that’s not a logical necessity. Suppose it does though. With fewer workers per retiree, each will have to pay more or else deficits will grow. So, demography is (somewhat) destiny but not the whole story. Health care costs are a huge part of the story.


    • Commenting on your recent story in CNN.com opinion section. “Don’t cut Medicaid, fund it better” you state “giving them Medicaid was cheaper than helping them buy private insurance.” Just a quick number check. You state, “a cost of $366 billion to cover about 49 million people in 2009, Medicaid is one of the cheapest ways to cover people.” That’s $7,469/year per person. Horizon BC/BS of NJ quotes $1270/month for my family of 4. That’s $3810/person/year for their EPO+ programme. That’s 1/2 of Medicaid. Granted there’s the high risk issue but there would be an offset with a group, 49,000,000 is a nice group, negotiation.
      Is there someway you can reconcile this for me? I’m sorry but when looking at the numbers it appears that we can either reduce Medicare spending OR improve the quality significantly for the same money.

    • Our dependency ratio is going to reach the level of the 1960s. Then the challenge was supporting and educating children. Many moms did not work. The economy not only survived, it flourished. It makes me wonder about the seriousness of the problem of an aging population–the increasing costs of health care would seem to dwarf any challenge posed by the future old age dependency ratio.

    • Larry, are you being serious or deliberately deceptive?

      You’re comparing apples to oranges…really, really big oranges. The quotes you’ll get from a health care company are based on the assumption nobody being covered has any serious health issues. Once you introduce a history of health problems, the rates go way, way up. To be on Medicaid, you pretty much have to be disabled or have a serious medical condition.

      You dismiss this with “there’s the high risk issue but there would be an offset with a group”. Really? Serious or deceptive? I can’t tell. This is like the logic that said, if we bundle a bunch of mortgages to people who can’t afford them into a big pool, then magically most of these people will be able to afford their mortgages. A pool of sick people does not cost the same as a pool of healthy people merely due to the size of the pool.

      Look, if you want to do an apples to apples comparison, get a quote for the following: You’re a two-time cancer survivor. Your spouse is pregnant with a history of high-risk pregnancies. One of your children has ALS. Let us know what the insurance company quotes you on that scenario. My guess is you won’t be able to get a quote because (based on my experience with far less significant health issues in family members’ past) they flat out won’t cover you at any price. But it would be informative to know what an insurance company would charge if forced to cover the typical Medicaid recipient.

      • So all 49,000,000 people are have ALS, Cancer or are in the middle of high risk pregnanles? I would go with the idea that they reflect the general population which is what the estimates are based on. Also these are based on individaul rates. Group rates are muych lower and as I said 49,000,000 is a heck of a group.
        However the real discussion should be around the statement, “giving them Medicaid was cheaper than helping them buy private insurance”. I say prove it! I would like someone to show me that the government price is cheaper then what privete industry can do. Get the biggest insurance companies in a room and get a quote.

        While I don’t know you Devin our real problem should be with the demagogue. You question my numbers but don’t question “giving them Medicaid was cheaper than helping them buy private insurance.”
        If my numbers are off so be it. Prove I’m wrong and we’ll move on. I’m still waiting on Mr. Aaron Carroll to show the numbers.

        • Larry,

          Follow my links. Feel free to redo the calculations yourself.

        • I only gave 3 or your 4 family members serious health conditions. I think that’s reasonably representative of the Medicaid population. Medicaid doesn’t cover the general population, and it’s highly disingenuous to imply that it does. You have to qualify for Medicaid. This requires being impoverished (which is highly correlated with serious illness, because healthy people are able to work and will almost always earn too much to qualify) and meeting other criteria that generally involve being in poor health.

          When people have serious health conditions, private insurance companies drop them and they wind up on Medicaid. I think assuming 10-20% of the population (30-60 million people) has a conditioned deemed uninsurable is pretty reasonable. If anything, it’s probably a low-estimate. Most of those people wind up on Medicaid, so yeah, I think assuming most of the 49 million covered by Medicare have serious health conditions is pretty reasonable.

          Why should I question that Medicaid is cheaper than private insurance? The insurance companies readily admit they can’t afford to cover people with serious health conditions. And when forced to, the typical fees are always well over $1000/mth. Why should I question the insurance companies? What incentive do they have to lie about the costs to cover high-risk individuals? Look, if insurance companies could cover high-risk individuals, the kind of individuals who currently rely on Medicaid, for less than $7500/year, then why don’t they?

          You seem to be arguing that insurance companies are part of a vast liberal conspiracy to hide the true cost of providing care to high-risk patients.

          • Devin,
            You argue that my numbers are inaccurate, which they are, either by one cent or thousands of dollars. I argue that you have no numbers at all, only assumptions and generalities. The real answer is to get the numbers on the table and either prove or disprove the statement “giving them Medicaid was cheaper than helping them buy private insurance”. And until Mr. Arron Carroll shows the numbers it’s demagougary and we have enough of that coming from all angles. There’s no real need for opinions, either Medicaid is cheaper or it’s not.

            I do appreciate your comments. It’s nice to know at least someone else is awake and asking questions.

            • Look, Larry, you know as well as I do there’s no way I can give you numbers for what it would cost private insurers to cover Medicaid patients–because they refuse to do it. Reminds me of two kids arguing who can do more pull-ups, and one says he can do more if he wants to but refuses to try. Not a very convincing argument.

              I can, however, give you numbers for what it would cost for a Medicaid-like system to cover all Americans. Based on the experience of every other developed nation, providing health care through a Medicaid-style system to all Americans would cost $2500-4000/per person (reference: http://thesocietypages.org/graphicsociology/2011/04/26/cost-of-health-care-by-country-national-geographic/ — note that I exclude Switzerland because they have the most-free-market-least-Medicaid-like system). That’s as good as the health insurance quote you got from a private insurer…even though the other systems have to cover sick people, too, while private insurers in the US can dump the sickest people onto Medicare/Medicaid.

              So you’re arguing that private insurers are cheaper because, even after they get to cherry-pick only reasonably healthy customers, they can do so for about $3800/yr per person. My numbers show that a centralized payment system such as Medicaid, if applied to all citizens (not just the unhealthy ones), will cost about $3800/yr per person at the very upper end of cost estimates.

              What other numbers would you like to discuss?