WSJ: Elderly Are Healthier and Wealthier, Yet Still Get Priority Spending
WSJ's Greg Ip highlights the U.S. spends $6 on seniors for every $1 on kids, even as the elderly grow healthier and wealthier. With Social Security under seven years from insolvency, reform pressure is building.
The Wall Street Journal's Greg Ip is pressing on one of the biggest fiscal questions in the U.S.: today's elderly are physically and financially healthier than any prior generation, yet federal policy still tilts heavily in their favor. The framing matters for markets because Social Security, Medicare, and long-term care spending sit at the center of the deficit story.
The 6-to-1 spending gap
At a recent Committee for a Responsible Federal Budget event, Ip noted that for every $6 the federal government spends on senior citizens, just $1 goes to children. He asked panelists whether that ratio makes sense given seniors are living longer and healthier lives with more accumulated wealth.
Ip's argument was that most public resources for young people are delivered at the state and local level, but the counterpoint is that seniors are typically healthier now and have less need for extra federal support.
Social Security is running out of runway
Social Security is less than seven years from insolvency, at which point the law calls for a 24% cut to all benefits. That is not a theoretical risk, it is a scheduled event unless Congress acts.
Despite facing deficits, Social Security continues to pay the country's wealthiest couples roughly $100,000 in annual benefits, and while only a few people currently enjoy those generous benefits, that number will become increasingly common.
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The health-span data behind the story
New research is reshaping the assumptions behind entitlement forecasts. From 1992 to 2017, life expectancy at 66 increased by 2.4 years, yet the period of severe physical and cognitive decline actually decreased by nearly one-third, meaning an 80-year-old in 2017 was less frail than their 1993 counterpart.
Longer lives significantly increase Social Security costs but place less burden on Medicare than anticipated due to improved health, with roughly 80% of the increased public spending from an additional 2.4 years of life coming from Social Security rather than healthcare.
The policy fight ahead
Reform proposals are starting to circulate. The Committee for a Responsible Federal Budget proposed a Trust Fund Solutions Initiative that would create a Six Figure Limit capping total couple benefits at $100,000, adjusted for marital status and claim age, with a single retiree at the National Retirement Age limited to $50,000.
Any real change faces a political wall. Silents and many Boomers place a high priority on Social Security and Medicare politically and are generally more resistant to major changes or reforms than younger Americans.
Options market and stocks to watch
Watch for entitlement-reform headlines to move names tied to the senior economy and healthcare cost curve:
- UNH: Watch for Medicare Advantage exposure to react to any reform or reimbursement chatter.
- HUM: Watch as another core MA insurer sensitive to CMS policy shifts.
- CVS: Watch given its Aetna MA book and pharmacy benefit exposure.
- LLY and NVO: Watch as GLP-1 leaders that may extend health-span and reshape long-term Medicare projections.
- WEL and senior-housing REITs: Watch for reaction if long-term care demand assumptions get revised.
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