Source of Fiscal Exposure: Demographics & Health Care

Demographic trends—such as an aging population and rising health care costs—are key contributors to fiscal exposures. An aging population refers to an increasing share of the total population being elderly. Over the long term, this trend is driven by longer life spans combined with lower fertility rates and will be accelerated with the aging of the baby boom generation. The number of baby boomers turning 65 is projected to grow from an average of over 7,000 per day in 2011 to more than 11,000 per day in 2029, driving spending for major health and retirement programs (see figure below). These demographic changes will have significant fiscal effects on both the federal budget and the economy.

Large Numbers of Baby Boomers Eligible to Retire in Next 5 Years

Excerpted from GAO-15-246CG.

Meanwhile, the number of workers supporting each retiree will continue to fall (as shown in figure below).

Fewer Workers Will be Supporting Each Retiree

Excerpted from GAO-14-1SP.

Health care spending per person over the last 50 years has been growing faster than gross domestic product (GDP) per person, meaning that an ever-growing share of the nation's income is spent on health care (see figure below).

Cumulative Growth in Real Health Care Spending Per Capita and Real GDP Per Capita

Excerpted from GAO-14-1SP.

The importance of assistance programs for older adults—such as Social Security, Medicare, and Medicaid, which collectively provide the largest source of funding for long-term care in this country—will continue to grow, as will the associated financial stress on the federal budget. Examples of exposures related to demographics and health care costs include the following:

Aging population and the impending retirement of the baby-boom generation. This trend is resulting in major long-term solvency challenges for the Social Security trust funds. If no action is taken, in the long run Social Security is projected to be unable to pay full benefits promised to retirees. Federal civilian and military pension benefits, for which the budget reflects payments made to retirees in the current year but not the accrued long-term costs, present an explicit exposure because the federal government has a legal commitment to make payments to eligible recipients.

Retirement programs with insufficient resources. The Pension Benefit Guaranty Corporation (PBGC), which insures the pension benefits of 41 million American workers and retirees, has one of the largest financial portfolios of any federal government corporation. However, PBGC’s financial future is uncertain due in part to a long-term decline in the number of traditional private sector pension plans. As shown in the figure below, at the end of fiscal year 2014, PBGC’s net accumulated financial deficit was nearly $62 billion primarily because of the growing crisis in PBGC’s multiemployer insurance program, which has an estimated 90 percent likelihood of insolvency by 2025. PBGC’s legal commitment to pay pension benefit guarantees when losses occur makes the program an explicit exposure. However, if the amount of losses are in excess of PBGC’s available resources, there may be a public expectation that the government will step in and cover all or some of such payments—thereby creating an implicit exposure.

PBGC Net Financial Position of the Single-Employer and Multiemployer Programs Combined

PBGC Net Financial Position  of the Single-Employer and Multiemployer Programs Combined

Excerpted from GAO-15-290.

The growing elderly population’s reliance on Medicare. Medicare Part B premiums, for example, which cover physician and other outpatient services, are set by statute to cover 25 percent of projected per capita program costs with the other 75 percent covered by the government. As a result, the amount paid by the government will continue to grow as the number of beneficiaries increases. Also, with the growth in the aged population, it is especially important to ensure efficiency and quality through financial and other incentives, while ensuring appropriate access to care.

Large and growing expenditures for Medicaid. GAO’s work has found that increasing pressures on state budgets can provide incentives for states to effectively shift costs from the state to the federal government through complex payment and financing arrangements. States often make supplemental, lump sum Medicaid payments to state- or local-government providers that are not based on claims for specific services, and gaps remain in oversight of such payments. Changing demographics will also increase pressures on Medicaid budgets. As the number of elderly Americans continues to grow and more individuals are likely to need long-term care services, Medicaid spending for these services is projected to increase.

Ensuring care for veterans. One way the Department of Veterans Affairs (VA) seeks to ensure timely access to health care for veterans (a benefit to which they are entitled) is by partnering with non-VA providers through the non-VA Medical Care Program. Under this program, VA reimburses non-VA providers who treat veterans on a preauthorized or emergency basis. VA’s total spending on this program has grown from about $1.6 billion in fiscal year 2005 to about $4.8 billion in fiscal year 2013. More than 1 million veterans have received care through the program.

Examples

GAO Reports

Other GAO Resources

Social Security

  • Social Security Administration: Long-Term Strategy Needed to Address Key Management Challenges (GAO-13-459)
  • Social Security Reform: Greater Transparency Needed about Potential General Revenue Financing (GAO-07-213)
  • Budget and Spending: Options for Social Security Reform (GAO-05-649R)
  • Social Security Reform: Answers to Key Questions (GAO-05-193SP)

Financial Security for Older Americans

SSA Service Delivery Challenges

Pension Benefit Guaranty Corporation

  • High-Risk Series: An Update (GAO-15-290)
  • Private Pensions: Multiemployer Plans and PBGC Face Urgent Challenges (GAO-13-428T)
  • Private Pensions: Timely Action Needed to Address Impending Multiemployer Plan Insolvencies (GAO-13-240)
  • Pension Benefit Guaranty Corporation: Redesigned Premium Structure Could Better Align Rates with Risk from Plan Sponsors (GAO-13-58)

Medicare

  • Medicare Fraud Prevention: CMS Has Implemented a Predictive Analytics System, but Needs to Define Measures to Determine Its Effectiveness (GAO-13-104)

Medicare Payment, Management, and Program Integrity

Medicaid

  • Medicaid: Completed and Preliminary Work Indicate that Transparency around State Financing Methods and Payments to Providers Is Still Needed for Oversight (GAO-14-817T)
  • Medicaid Financing: States' Increased Reliance on Funds from Health Care Providers and Local Governments Warrants Improved CMS Data Collection (GAO-14-627)
  • Medicaid: Financial Characteristics of Approved Applicants and Methods Used to Reduce Assets to Qualify for Nursing Home Coverage (GAO-14-473)
  • Medicaid: More Transparency of and Accountability for Supplemental Payments Are Needed (GAO-13-48)

Medicaid Financing, Access, and Integrity

Department of Defense and VA health care

  • Veteran's Health Care Budget: Improvements Made, but Additional Actions Needed to Address Problems Related to Estimates Supporting President's Request (GAO-13-715)
  • VA Health Care: Estimates of Available Budget Resources Compared with Actual Amounts (GAO-12-383R)

Continuity of Health Care from DOD to VA

VA and DOD Health Care Collaboration

Other related areas

Health Care Quality and Access