Government Spending on the Elderly: Social Security and Medicare

Studies | Federal Spending | Health | Social Security

No. 247
Friday, November 30, 2001
by John C. Goodman and Matt Moore


Notes

  1. Liqun Liu and Andrew J. Rettenmaier, "Social Security and Race," National Center for Policy Analysis, NCPA Policy Report No. 236, October 2000.
  2. Based on official forecasts by the Social Security Administration and the Health Care Financing Administration (now called the Centers for Medicare & Medicaid Services), as presented in the 2001 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Disability Insurance Trust Funds (referred to as the 2001 Social Security Trustees Report), the 2001 Annual Report of the Board of Trustees of the Federal Hospital Insurance Trust Fund and the 2001 Annual Report of the Board of Trustees of the Federal Supplementary Medical Insurance Trust Fund.
  3. Students beginning their first year in college during the 2001-2002 school year were born in 1983 and are currently 18 years old. This cohort will reach normal retirement age (67 years old) in 2050.
  4. Health care spending on the elderly by government programs other than Medicare is assumed to continue at 36.3 percent of Medicare spending. The NCPA calculated this number using figures for Medicare and Medicaid from "Health Care Financing Review: Medicare and Medicaid Statistical Supplement, 1999," Health Care Financing Administration. Figures for other elderly health spending, including Veterans Affairs and other programs, were drawn from "Medicare 2000: 35 Years of Improving Americans' Health and Security," Health Care Financing Administration, July 2000, Figure 10.
  5. John C. Goodman and Dorman E. Cordell, "The Nightmare in Our Future: Elderly Entitlements," National Center for Policy Analysis, NCPA Policy Report No. 212, January 1998.
  6. Laurence J. Kotlikoff, "Is War between Generations Inevitable?" National Center for Policy Analysis, forthcoming study.
  7. Budget Options, Congressional Budget Office, Chapter 6, February 2001. Available online at http://www.cbo.gov/showdoc.cfm?index=2731&sequence=23&from=5.
  8. Chris Edwards, Economic Benefits of Personal Income Tax Rate Reductions (Washington, D.C.: U.S. Congress, Joint Economic Committee, April 2001). Available online at http://www.house.gov/jec/tax/taxrates/taxrates.pdf.
  9. 2001 Social Security Trustees Report, Table VI.A1. pp. 115-116.
  10. 2001 Social Security Trustees Report, Table V.A1. p. 73.
  11. 2001 Social Security Trustees Report, p. 70.
  12. World Population Prospects: The 2000 Revision, The United Nations Population Division, Table 2.
  13. Social Security Trustees Report, Table V.A2.
  14. Social Security Trustees Report, Table V.A3
  15. Ibid.
  16. Ibid.
  17. Health Care Financing Review: Medicare and Medicaid Statistical Supplement, 1999, U.S. Department of Health and Human Services, Health Care Financing Administration, Table 1, p. 89.
  18. Laurence J. Kotlikoff, "Privatizing Social Security," National Center for Policy Analysis, NCPA Policy Report No. 217, July 1998.
  19. Ibid
  20. "Social Security: Why Action Should Be Taken Soon," Social Security Advisory Board, July 2001. The Social Security Advisory Board makes several assumptions that causes them to overstate the percent of Social Security deficit resolved by various methods. First, they assume that the trust fund is solvent and holds real assets, so the deficit will be increased by one-fourth in order to redeem the IOUs in the trust fund. Second, the board's calculations only save the system until 2075. Each year after 2075 will add additional costs to the program and increase the long-term deficit.
  21. Population Projections of the United States by Age, Sex, Race and Hispanic Origin: 1995 to 2050 - Middle Series, Vital Rate Inputs, U. S. Bureau of the Census, Population Division (1996). Table B-1. By contrast, the life expectancy for a white male is 74.2 years.
  22. W. Michael Cox and Richard Alm, Myths of Rich and Poor: Why We're Better Off Than We Think (New York: Basic Books, 1999), p. 56.
  23. Social Security Advisory Board, p. 25.
  24. Social Security Advisory Board, p. 23.
  25. See Martin Feldstein, "The Missing Piece in Policy Analysis: Social Security Reform," National Bureau of Economic Research, Working Paper 5413, January 1996. Also see Chris Edwards, Economic Benefits of Personal Income Tax Rate Reductions (Washington, D.C.: U.S. Congress, Joint Economic Committee, April 2001). Available online at http://www.house.gov/jec/tax/taxrates/taxrates.pdf.
  26. Stephen J. Entin, "Reducing the Social Security Benefits Tax," National Center for Policy Analysis, NCPA Brief Analysis No. 332, August 10, 2000.
  27. An average indexed monthly earning (AIME) is calculated for each worker, which includes all the Social Security taxes the worker paid each year from 1951 to the present. This amount is indexed for inflation. From these annual earnings, the worker's highest-earning 35 years are selected, added and divided by 420 (the number of months in 35 years). This monthly number is the worker's AIME. Next, each worker's primary insurance amount (PIA) is calculated, which is the basic monthly benefit the worker will receive. It is derived from the worker's AIME by applying a progressive benefit formula. The PIA is indexed for inflation through annual cost-of-living increases (COLAs). The formulas are skewed so that lower-income people receive a higher benefit relative to the amount of taxes they paid in than higher-income people. The formula could be altered by expanding the 35-year limit to include more lower-earning years, thus reducing the average earnings and therefore benefits. In addition, the PIA formula could be rewritten to replace less of a worker's preretirement income, thus decreasing monthly benefit payments.
  28. NCPA calculations based on the 2001 Social Security Trustees Report.
  29. Liqun Liu, Andrew Rettenmaier and Thomas Saving, "Saving the Surplus," National Center for Policy Analysis, NCPA Policy Report No. 241, January 2001.
  30. Ibid.
  31. Ibid.
  32. 2001 Social Security Trustees Report, Table V.A2. p. 75.
  33. Anne Swardson, "Pensions Threaten European Economies," Washington Post, April 26, 2000, p. A1.
  34. The White House Bulletin, "Germany Adopts Plan to Partially Privatize National Retirement System," Bulletin News Network, Inc., May 11, 2001.
  35. Luis Larrain, "Privatizing Social Security in Latin America," National Center for Policy Analysis, NCPA Policy Report No. 221, January 1999.
  36. Peter J. Ferrara, John C. Goodman and Merrill Matthews Jr., "Private Alternatives to Social Security in Other Countries," National Center for Policy Analysis, NCPA Policy Report No. 200, October 1995.
  37. Report of the 1994-1996 Advisory Council on Social Security, Vol. I: Findings and Recommendations, Washington, D.C., 1997.
  38. Glenn Kessler, "Clinton Eyed Private Social Security Accounts," Washington Post, June 28, 2001, p. A6.

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