FIGURE 9-1  Projected costs and revenues for the Social Security Old-Age, Survivors, and Disability Insurance (OASDI) program, 2011–2050. SOURCE: Board of Trustees, Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds (2011).

not only on how many people are eligible for the program, but also on their health needs and the costs of treatments.

One important question is the relationship between increased life expectancy and Medicare spending. Holding all else constant, an increase in longevity raises Medicare spending because it increases the size of the elderly population, and that increase is concentrated among the oldest old (those aged 85 and over), who generally have the greatest need for health services.5 However, to the extent increased life expectancy is associated with better health at a given age, then Medicare expenditures need not rise as much. Indeed, several researchers have found that time until death is a better predictor of health expenditures than is age, and that taking this into account can lead to a substantial reduction in projected health expenditures (Shang and Goldman, 2007; Seshamani and Gray, 2004; Stearns and Norton, 2004; Lee and Miller, 2002; Cutler and Sheiner, 2001). However, much of this research uses data from the period when disability levels were still declining, and it remains an open question how the recent stabilization in old-age disability, discussed in Chapter 4, will affect future health expenditures.

A far more important source of uncertainty concerns the expected rate


5Increased life expectancy raises the share of the population that is 85 years and older, but the large flow of baby boomers entering into retirement raises the share of the young elderly. The average age of Medicare beneficiaries is projected to decline into the 2030s; after that, the average age of the elderly population increases gradually over time with increased life expectancy.

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