Beyond Social Security

You may have heard in the news that discussion of the need to reform Social Security applies to other government programs. In particular, if a part of the Social Security program is a growing imbalance in the age distribution, then other programs that support transfers to older people are potentially in trouble as well. A leading example of this is the Medicare program. [2] This program provides health care to the elderly. A second example is Medicaid, which is also a publically funded program, administered at the state level, to provide health care; this program is intended to provide assistance to poor people. [3] These programs, like Social Security, entail large outlays by the government. In his testimony in June 2008 to the Senate Finance Committee, Peter Orszag, the director of the CBO, stated the following: “The Congressional Budget Office (CBO) projects that total federal Medicare and Medicaid outlays will rise from 4 percent of GDP [gross domestic product] in 2007 to 12 percent in 2050 and 19 percent in 2082, which, as a share of the economy, is roughly equivalent to the total amount that the federal government spends today. The bulk of that projected increase in health care spending reflects higher costs per beneficiary rather than an increase in the number of beneficiaries associated with an aging

population.” [4] This quote contains two key ideas. First, it seems likely that outlays for these

two programs will be growing rapidly over the next 50 or so years. From the CBO projections, the share of spending on Medicare and Medicaid grows while the share of spending on Social Security is basically constant after 2020. [5] Second, in contrast to Social Security, the problem is not only demographics. Instead, as noted in the testimony, a significant part of the increased cost of these programs comes from the increases in treatment per individual, rather than the number of individuals. Thus as you use the tools provided in this chapter to ponder Social Security, keep in mind that other programs have similar budgetary challenges. Long-term solutions are needed either to finance the projected increase in outlays or to reduce the costs of these programs.