tMichaelB is the web site for Tom Bengtson, who writes about business, religion, family and politics.

Wednesday, March 23, 2005

The Aging of America: Midwest will be particularly hard hit

The debate over Social Security reform has shined the spotlight on the demographic realities of our country. We’ve all heard the facts:

*) In 1950, there were 16 workers for every Social Security beneficiary; today there are three workers for every beneficiary.
*) The first of the baby boomers (those born between 1946 and 1964) will retire in 2008. The number of people entering the workforce will not keep pace with those retiring.
*) By 2040, there will be just two workers for every Social Security beneficiary.
*) In general, people are living longer and retiring earlier.

The “aging of America” will affect everyone, particularly the Upper Midwest, which has a higher-than-average proportion of the aged population.

The Unites States Census reports there were 35 million people in the year 2000 who were 65 years old or older, a figure that represents a 12 percent increase in the over-65 population from 1990. However, the overall population grew as well in the 1990s, so while the over-65 group made up 12.4 percent of the total population in the United States in 2000, that’s actually a smaller percentage than the 12.6 percent that group made up in 1990.

In the 1990s, the oldest of the older generation saw their ranks swell. The population 85 years and older increased by 38 percent, from 3.1 million in 1990 to 4.2 million in 2000. The 75 to 84 crowd grew by 23 percent, and the population 65 to 74 grew by just 2 percent.

During the 1990s, the portion of the population over 65 in the Midwest stayed relatively stable, representing 13 percent of the population in 1990, and 12.8 percent in 2000. However, certain counties in the Midwest saw high concentration levels of seniors. The Census Bureau reports that the Midwest has more counties that have senior populations exceeding the national average than any other region. Eighty-two percent of the Midwest’s 1,055 counties have a senior population larger than the 12.4 percent average for the country. States such as Nebraska, Iowa and North Dakota are particularly gentrified, with more than 90 percent of the counties in those states hosting senior populations larger than the national average. North Dakota has more people older than 85 per capita than any other state. South Dakota and Iowa have the highest percentages of people 100 years old or older (1 out of 3,056 people in South Dakota, and 1 out of 3,110 in Iowa).

The demographic age wave is rolling toward the Midwest and some say it may swamp the region if careful planning doesn’t take place now. Consider that about 76 million baby boomers are expected to retire between 2008 and 2030. This means that the country will have about twice as many people over the age of 65 as it does now, but fewer people working. There are only 48 million people in Generation X, the group of workers behind the boomers. And even if you add the youngest workers, who constitute Generation Y, you don’t come up with enough people to replace all the expected retirees.

In Minnesota, for example, the over-65 population is expected to grow by 117 percent between now and 2030. By then, 21 percent of Minnesota’s residents are expected to be older than 65 compared to 12 percent today. South Dakota expects is senior population to increase by 66 percent by 2020. By 2025, one University of South Dakota researcher expects 25 percent of the state’s population to be over 65. North Dakota, already considered to host the country’s fifth-oldest population, will see its over-65 population segment grow from 14.7 percent of total state population today to 23 percent by 2020.

Given the current media buzz, we have heard a lot about the impact of the changing demographics on Social Security. Beginning in 2018, the amount of taxes collected for Social Security from the labor force will not cover the benefits paid. The existing trust fund will be depleted –- by 2027 it will exhaust the interest it collects on its Treasury bonds, and by 2042 the bonds themselves will all have been redeemed.

Social Security, however, is only one concern. Equally pressing, or even more so, is the condition of the nation’s Medicare and Medicaid programs. Expenditures for these two programs currently constitute about 3.4 percent of the country’s Gross Domestic Product. The Congressional Budget Office estimates that expenses will grow to equal 8 percent of GDP by 2030, and to as much at 15 percent by 2075. CBO made these projects prior to 2003 reforms, which will increase costs even more.

The Fed Gazette, a publication of the Minneapolis Federal Reserve Bank, recently cited a Minnesota Department of Health analysis that said one in 10 people of baby boomer years are hospitalized in a given year. For those 65 to 74 years old, the rate is three in 10, and for those over 85, it is six in 10. The analysis predicts a 56 percent increase in hospitalizations over the next 30 years -– over half of the increase due to the state’s aging population.

Such developments will have a real impact on states and taxpayers. Medicare, (a federal health care program for the elderly) is funded entirely at the national level, but Medicaid, (a federal health care program for poor, disabled and indigent elderly) is partially funded by states. The federal government pays about 57 percent of Medicaid expenses, leaving the rest to the states. Medicaid accounted for 21.4 percent of total state spending in fiscal 2003, or about $122 billion. Across the country, more than 50 million low-income people receive assistance through Medicaid. And the enrollment is growing. Enrollment increased 8.8 percent in fiscal 2003, and was estimated to grow another 5.5 percent in fiscal 2004.

The National Association of State Budget Officers reports that Illinois was projected to spend $5.5 billion for Medicaid in fiscal 2004, or 28.1 percent of its total budget. Indiana was set to spend $1.52 billion, or 21.6 percent of its budget. It’s a major expense in all states, even though some states have reduced their expenditures. Iowa reduced its Medicaid spending from $1.17 billion in 2002 or 20.4 percent of its budget, to $795 million in fiscal 2004, but that’s still 15.6 percent of its budget.

These are just some of the numbers that begin to tell the story of a population that is increasingly aging. The fact that more people are living longer in the United States is not new; we’ve seen this coming for decades. The real story will unfold in the decades ahead as people adapt to new paradigms surrounding retirement and health care.

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