LTC Bullet:  The Global Aging “Threat”

Monday  October 22, 2001


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Medicaid planners and other advocates of government-financed long-term care often make their case in the following way.  "America's health care financing system is grossly unfair," they say.  "If you have cancer or heart disease, Medicare will pay for nearly unlimited medical care.  But if you are unlucky enough to have a chronic long-term illness such as Alzheimer's or Parkinson's, you must impoverish yourself before you can get any help from the government."  Leaving aside the myriad ways lawyers impoverish their clients artificially to get them Medicaid nursing home benefits without spending down, the fallacy in this "fairness" argument is clear.  Medicare is far more likely to disappear entirely in the future than a similar, broad-based government program to pay for comprehensive long-term care is likely to appear.  It just isn't going to happen.

Any doubts one might have about this conclusion are removed by a new study on the global aging crisis:  "Global Aging:  Threat to Growth."  According to a press release from the Center for Strategic and International Studies (CSIS):

"Aging and depopulation in coming decades threaten to overwhelm social security systems and undermine growth in the developed countries, perhaps leading to a new era of global financial instability.  To avert economic crisis, nations should convert social protection schemes from pay-as-you-go [e.g. Medicare and Medicaid] to market-based financing [e.g. long-term care planning products such as insurance] while pursuing coordinated strategies to increase labor force participation and enhance productivity, according to a majority report by the CSIS Commission on Global Aging.

"The international commission, composed of 86 political leaders, business and nongovernmental organization executives, and policy experts, outlined a multifaceted program of policy reforms to social entitlements, private pensions, labor law, financial services, family policy, immigration, civil society, and international diplomacy.  The panel, chaired by former Japanese prime minister Ryutaro Hashimoto, former U.S. vice president Walter Mondale, and former Deutsche Bundesbank president Karl Otto Pöhl, offered 55 recommendations at a conference in Tokyo on Aug. 29.  The report can be accessed at"

. . .

"'With a high degree of consensus, the Commission found that the challenges of global aging are fundamental, unprecedented, and potentially destabilizing to global prosperity.  Urgent corrective actions are needed in order to avert more painful consequences later on,' the report states.  . . .  The Commission's recommendations, which had to be approved by 75 percent of its members, include pension system reforms and economic restructuring.

"Pension Reforms.  To avert fiscal crisis and assure the adequacy of global savings, the Commission called on developed nations to do the following:

"*Gradually replace pay-as-you-go financing with market-based financing, supplemented by a contingent state guarantee of 'adequate' minimum benefits.

"*Gradually reduce pension benefits where 'excessive' levels of income replacement preclude the need for individual saving.

"*Establish funded employer-sponsored pension plans in nations where they do not now exist; manage them according to 'prudent expert' fiduciary standards without restrictions on cross-border investment.

"*Increase the pension eligibility age in correspondence with gains in life spans.

"*Encourage the adoption of funded social security systems in the developing world.

"Economic Restructuring.  To promote economic growth in an era of stagnant or shrinking working-age populations, the Commission called on developed country governments to do the following:

"*Restrain mandatory retirement.

"*Eliminate incentives to retire or to remain jobless from social protection schemes.

"*Adopt protections against gender and age discrimination in the workplace.

"*Increase flexibility in labor markets by reducing regulations that prevent employers from discharging workers and freely contracting with workers.

"*Integrate immigration policies into a long-term strategy to assure adequate labor supplies. Make it easier for non-native residents to achieve citizenship or permanent residency.  Promote tolerance of non-native cultures or races.

"*Adopt regulatory reforms designed to introduce or expand competition in sectors of the economy where market forces are now limited-especially in services.

"*Provide tax and in-kind benefits for child and elderly care.

"*Provide financial support and favorable tax and regulatory treatment for research into industrial and technological innovation and for the development of human capital."