The Rising Burden of Health Spending on Seniors

Policy Reports | Health

No. 297
Thursday, February 01, 2007
by Liqun Liu, Andrew J. Rettenmaier and Zijun Wang


America is aging.  As the 77 million baby boomers enter their retirement years, the United States will experience an unprecedented shift of people out of the workforce and into retirement.  This demographic change will pressure society - both workers and retirees - in many ways, but nowhere more than spending on health and medical care.

This paper examines total health spending on the elderly by all sources as a percentage of seniors' total potential consumption.  By this measure, health care constitutes more than 43 percent of all consumption by the elderly; in less than 20 years, health care will constitute more than half of all consumption by the elderly. 

“Health care spending for seniors will grow as baby boomers retire.”

This paper also documents seniors' out-of-pocket health spending (including premiums for Medicare and individually purchased Medigap insurance) as a portion of their cash incomes. 1   For example, seniors' spending on their own health care will grow to about 24 percent of their cash incomes within the next 25 years.  This amount will equal 60 percent of their Social Security benefits.  If retirees are asked to pick up more of Medicare's tab, which seems inevitable, the percentage of their incomes devoted to health care will rise.

Finally, this paper presents a snapshot of current retirees' health, sources of income, wealth and spending on medical care. 2   As seniors age, their health status declines, leading to higher health care spending and an increased dependence on government programs - that is, taxpayers - to pay for it. 

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