Reasons for the Changes in Medicare Spending Over TIme

Increases in the Number of Medicare Beneficiaries The proportion of the United States population covered by Medicare has increased over time. This has resulted from the normal eligibility age remaining fixed at 65 combined with the aging of the population. The aging of the population is due to both increased life expectancy and decreased fertility. In 1965, 65-year-old retirees could expect to live for 14.7 more years; by 2006, they could expect to live for 18.6 more years. In 1965, the fertility rate was 96.3 births per 1,000 females aged 15 to 44; by 2004, it had fallen to 60.7 births. (These changes in demographics have a similar effect on Social Security.) The worker-per-beneficiary ratio illustrates the portion of the population which provides revenue to cover the needed spending on Medicare beneficiaries. In 1965, there were about 4.6 workers for each Medicare beneficiary. In 2005, there were about 3.8 workers for each Medicare beneficiary. In 2050, there are projected to be only 2.2 workers for each Medicare beneficiary. In addition to being affected by long-term increases in longevity and decreases in fertility, the worker-per-beneficiary ratio during the upcoming years is also affected by the aging of the baby boom generation, which is made up of those born between 1946 and 1964. (The baby boom generation can be viewed as a temporary change in fertility rates.) The baby boom generation explains the relatively steady worker-per-beneficiary ratio between 1975 and 2005 and the dramatically decreasing ratio between 2010 and 2040. After 2050, most benefits owed to the baby boom generation will have been paid, and the worker-per-beneficiary ratio is projected to be relatively steady though 2080 as long as current assumptions hold. Unlike Medicare, the full retirement age for Social Security is 65 for those born in 1937 and earlier, and will rise slowly to 67 for those born in 1960 or later. However, the effect of increasing the eligibility age for Medicare would not have a very large effect on total Medicare spending, because Medicare