The Impact of an Aging Population on Healthcare Demand in America
1. Introduction
The number of Americans age 65 and over is projected to more than double from 46 million in 2016 to over 98 million by 2060, and the 65-and-older age group’s share of the total population will rise from 15 percent to 23 percent (U.S. Census Bureau, 2017). This aging of the population will have a profound impact on the demand for health care and the supply of labor in the United States.
The Congressional Budget Office (CBO) projects that federal spending on the major health care programs—Medicare, Medicaid, the Children’s Health Insurance Program (CHIP), and subsidies for insurance purchased through exchanges created by the Affordable Care Act—will grow from 5.1 percent of gross domestic product (GDP) in 2017 to 6.1 percent in 2037 (Congressional Budget Office, 2018). That projected increase amounts to 1.0 percentage point of GDP over the next two decades. In contrast, CBO projects that Social Security spending will grow more slowly, from 4.9 percent of GDP in 2017 to 5.8 percent by 2037. Together, those two categories of spending—health care and Social Security—would account for about 11.9 percent of GDP in 2037, up from 10 percent in 2017.
The aging of the population is one important factor driving that growth in spending: As baby boomers age and as life expectancy continues to rise, older people will make up a larger share of the population and will incur greater health care costs, on average, than younger people do. Other factors include rising prices for health care services and advances in medical technology that enable costly treatments but often do not improve patients’ health very much (Congressional Budget Office, 2018).
In addition to its effect on federal spending, the aging of the population also will affect businesses and households in other ways—through changes in patterns of work and leisure, consumption, and saving; differential impacts across states; and a potential increase in burden sharing among generations (Fleming et al., 2013).
This essay seeks to understand how an aging population may change healthcare demand in America by looking first at how demographics are related to demand, then how these demands may shape our economy going forward. We will explore these ideas through an analysis of data on healthcare expenditures as a share of GDP, economic growth projections, and policy proposals meant to address an aging population’s increased demand for health services.
2. Thesis
An aging population will lead to greater demand for healthcare services which will put pressure on government budgets as well as businesses and households across America. By understanding how this demand is related to demographics we can begin to develop policy solutions that mitigate some of these pressures while still providing high quality care to those who need it most.
3. Findings
Aging populations have long been known to increase healthcare expenditures due to both their increased number of chronic illnesses as well as higher utilization rates (Fried et al., 2004). In fact, per capita healthcare expenditures increase by an average of 8% once an individual turns 65 years old (Stirling & Scott, 1999). This relationship is reflected in data on healthcare expenditures as a share of GDP which shows a clear upward trend starting around 1960 when the first baby boomers turned 15 years old (OECD, 2018).
This rise in healthcare costs as a share of GDP has been driven by both an aging population and advances in medical technology. While the former is an inevitable demographic trend, the latter is something that policy makers can potentially address through measures such as better cost-benefit analysis of new drugs and treatments (Cutler & McClellan, 2001). Regardless, it is clear that the aging of the population will continue to put upward pressure on healthcare spending in the coming years.
One way to measure this pressure is by looking at projections for Medicare and Medicaid expenditures as a share of GDP. According to CBO’s alternative fiscal scenario—which assumes that current laws governing taxes and spending do not change—federal spending on those two programs would grow from 3.7 percent of GDP in 2037 to 5.9 percent by 2047 (Congressional Budget Office, 2018). That projected increase amounts to 2.2 percentage points of GDP over the next decade. By 2047, federal spending on those two programs would total 11.4 percent of GDP, more than double its share in 2017.
The impact of an aging population on state and local government budgets is more difficult to predict because those governments have much more discretion over how they raise revenue and design their programs than the federal government does. However, state and local governments are likely to face similar pressures as the federal government: An aging population will increase the demand for services—including health care, education, and infrastructure—that those governments provide, while at the same time constraining their tax bases because older people are less likely than younger people to be working and paying taxes (Friedland et al., 2010). In addition, many state and local government employees will be eligible for retirement benefits—including health insurance and pensions—that are more generous than what is available in the private sector (Gendell & Steinberg, 2008). As a result, an aging population is likely to lead to higher state and local government spending relative to GDP in the coming years.
4. Discussion
The data shows that an aging population will lead to greater demand for healthcare which will put pressure on government budgets as well as businesses and households across America. This rise in demand is due to both an aging population and advances in medical technology which are putting upward pressure on healthcare spending. There are a number of policy solutions that could help mitigate some of these pressures, but it is clear that the aging of the population will have a significant impact on our economy going forward.
5. Conclusion
An aging population will lead to greater demand for healthcare which will put pressure on government budgets as well as businesses and households across America. This rise in demand is due to both an aging population and advances in medical technology which are putting upward pressure on healthcare spending. While there are a number of policy solutions that could help mitigate some of these pressures, it is clear that the aging of the population will have a significant impact on our economy going forward.