Aging Population Means Increased Medicare Recipients and Growing Health Care Costs

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“It only makes sense that as baby boomers age they will be taking advantage of Medicare and Social Security, the programs that were designed to help them in their twilight years,” suggests Alan Weinstock, insurance broker at “The difficulty is that it appears that the number of households that have accessed the retirement and health programs has grown rapidly due to the large number of retirees.”

Future Medicare and Social Security Costs Projected in 2000

Back in 2000, the Congressional Budget Office (CBO) projected there would be a fiscal shortfall in both programs due to the aging baby boomers, increased life expectancy and increasing medical costs. The assumption was that from 2000 to 2030 the number of elderly people would double. The estimate, at that time, was that the cost of Social Security and Medicare as a percent of the gross domestic product (GDP) would rise from 6.5 percent to around 11 percent by 2030.

How accurate was this projection? Well, according to A Summary of the 2010 Annual Social Security and Medicare Trust Fund Reports from the Social Security and Medicare Boards of Trustees, Social Security’s projected annual cost is expected to increase to about 6.1 percent of GDP in 2035, then decline to 5.9 percent by 2050 and remain between 5.9 and 6.0 percent through 2084. Under current law, Medicare costs should increase to 5.5 percent of GDP in 2035 and to 6.4 percent in 2084.

Apparently the assumption about the cost for Medicare and Social Security in the next 20 years has remained somewhat unchanged during the past 10 years.

Long-Range Outlook for Medicare Due to ACA

Interestingly enough, however, the Trustees report indicates that this wasn’t always the case. In 2009, the combined cost of the Social Security and Medicare programs equaled 8.4 percent of GDP. The 2009 report actually projected that the cost of Medicare would increase to 7.2 percent of GDP by 2035, eventually reaching 11.4 percent by 2083. Their explanation for the improvement in their 2010 report is the Affordable Care Act (ACA).

According to the Trustee report, “The new long-range projections assume that the ACA’s mandated reductions in health care cost growth are implemented over the full 75-year projection period. To illustrate the potential understatement of Medicare cost projections under current law, if such implementation were not possible and payment rate adjustments were gradually phased out during 2020-34, and if Medicare payment rates to physicians were updated using the Medicare Economic Index rather than declining by 30 percent under the current-law formula, then projected Medicare costs would represent about 11.0 percent of GDP in 2084.”

Obviously, this is good news not only for the Federal budget, but for the large group of baby boomers who are hoping to retire over the next few years.

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