LTC Bullet: If You Think We've Got Problems . . .

Wednesday, April 9, 2003

Seattle--

LTC Comment: The United States is less vulnerable to the challenges of an aging society than most developed countries, but that is no reason for complacency. More after the ***news***.

*** This Bullet is sponsored by the National LTC Network, "Partners in Long-Term Care Insurance Coverage, Design, Education and Distribution." Visit the Network online at http://www.nltcn.com/ . Contact Allen Mansfield, Executive Director, at 800-996-6789 or mailto:allenmansfield@nltcn.com for more information. Thanks so much to Network members for their generous support of the Center. Won't you help too? Go to http://www.centerltc.org/support/sponsor_bullets.htm to sponsor an LTC Bullet. Find out how you can sponsor other Center activities (e.g., articles, speeches, conference exhibits) by contacting Amy Marohn-McDougall at 425-377-9500 or mailto:amy@centerltc.org . ***

*** Tallahassee subscribers: Center President Stephen Moses will be in Tallahassee, Florida on April 22-23, 2003. Contact him directly at 206-283-7036 or mailto:smoses@centerltc.org to schedule a meeting, briefing, or testimony. He is engaged to speak before a state long-term care policy advisory committee on Wednesday, April 23, but time is still available on Tuesday, April 22. ***

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LTC BULLET: IF YOU THINK WE'VE GOT PROBLEMS . . .

LTC Comment: The impending age wave poses huge challenges for America. Our retirement (Social Security) and health care (Medicare and Medicaid) security programs are highly vulnerable. If you have any doubt about that fact, review the frequent warnings offered by the Congressional Budget Office, the General Accounting Office, and the Trustees of the Social Security and Medicare programs, among others. But compared to other developed countries, the United States is relatively better positioned to face the challenges of an aging society. A new report offers hope that there is still time to avert "fiscal and economic meltdown" even though "time is running short, and the problem is worse than is generally supposed." Following is a link to and excerpts from: Richard Jackson and Neil Howe, "The 2003 Aging Vulnerability Index: An Assessment of the Capacity of Twelve Developed Countries to Meet the Aging Challenge," Center for Strategic and International Studies [CSIS]and Watson Wyatt Worldwide, Washington, D.C., March 2003. http://www.csis.org/gai/aging_index.pdf

"EXECUTIVE SUMMARY

"The rapid aging of the developed countries will pose a major challenge for global prosperity and stability during the first half of the twenty-first century.

"Today, there are 30 pension-eligible elders in the developed world for every 100 working-age adults. By the year 2040, there will be 70. In Italy, Japan, and Spain, the fastest-aging countries, there will be 100. In other words, there will be as many retirees as workers. This rising old-age dependency ratio will translate into a sharply rising cost rate for pay-as-you-go retirement programs - and a heavy burden on the budget, on the economy, and on working-age adults in any country that does not take serious steps to prepare.

"Ten years ago, global aging barely registered as a policy issue. Today, with the retirement of large postwar baby-boom generations looming just over the horizon, it is the focus of growing concern among political and policy leaders worldwide. From Australia to Sweden, the developed countries are beginning to debate - and enact - major reforms. Yet despite all the new attention, there exists no satisfactory measure of the magnitude of the challenge.

"The CSIS Aging Vulnerability Index assesses the 'vulnerability' of the developed countries to rising old-age dependency costs. In this first edition, the Index covers twelve countries - Australia, Belgium, Canada, France, Germany, Italy, Japan, the Netherlands, Spain, Sweden, the United Kingdom, and the United States. In future editions, the Index may be expanded to include the rest of the developed world - or, data allowing, selected developing countries.

"The Index gives each country an overall ranking and score. The scores show that the twelve countries fall into three clear groups - a low, a medium, and a high vulnerability group.

"Low Vulnerability Group

"In the 2003 Index, the low vulnerability group includes Australia (1), the United Kingdom (2), and the United States (3). These English-speaking countries win the first three places thanks to their favorable demographics, their relatively inexpensive public benefit systems, and their well-developed private alternatives. The group does face some real challenges. The UK, for example, is finding it difficult to keep costs down without hurting elder living standards, while the United States must grapple with runaway health care spending. Still, all of these countries are in relatively good shape. Australia, in particular, is implementing a far-sighted strategy of mandatory private pension coverage that promises excellent results on all fronts.

"Medium Vulnerability Group

"There are six medium vulnerability countries: Canada (4), the English-speaking straggler; Sweden (5) and Germany (7), two continental European countries that have recently enacted major benefit reforms; Japan (6), which ranks much higher in the Index than its massive age wave might indicate; and the Netherlands (8) and Belgium (9), two countries with generous and unreformed benefit systems. All of the medium vulnerability countries, including Canada, face more serious demographic challenges than the low vulnerability countries. And despite recent reforms, all, including Sweden and Germany, face heavier old-age dependency burdens.

"High Vulnerability Group

"The high vulnerability group includes three major continental European countries that all face a daunting fiscal and economic future: France (10), Italy (11), and Spain (12). Their poor scores can be attributed, in varying degrees, to severe demographics, lavish benefit formulas, early retirement, and heavy elder dependence on pay-as-you-go public support. It is unclear whether they can change course without economic and social turmoil. Italy has scheduled big reductions in future pension benefits, but only after grandfathering nearly everyone old enough to vote. France and Spain have yet to initiate major reforms of elder benefit programs.

"The Index is compiled from indicators in four basic categories, each dealing with a crucial dimension of the challenge:

o Public-burden indicators, which track the sheer magnitude of the public spending burden in each country

o Fiscal-room indicators, which track each country's ability to accommodate the growth in old-age benefits via higher taxes, cuts in other spending, or public borrowing

o Benefit-dependence indicators, which track how dependent the elderly are on public benefits and thus how politically difficult it may be to reduce their generosity

o Elder-affluence indicators, which track the relative affluence of the old versus the young - another trend that could critically affect the future politics of benefit reform

"The projections underlying the Index are based on a 'historical trends' scenario, a no-wishful-thinking baseline that assumes a continuation of established demographic and economic trends. According to the projections, public benefits to the elderly will reach an average of 25 percent of GDP in the developed countries by 2040, double today's level. In Japan, they will reach 27 percent of GDP; in France, they will reach 29 percent; and in Italy and Spain, they will exceed 30 percent. This growth will throw into question the sustainability of today's retirement systems - and indeed, society's very ability to provide a decent standard of living for the old without overburdening the young.

"The Aging Vulnerability Index is the first attempt to develop a comprehensive measure of the old-age dependency challenge that is comparable across the developed countries. As such, it must be regarded as experimental. We offer this first edition of the Index in the hope that it will stimulate debate and focus attention on the need for reform. The Index clearly shows that global aging is pushing much of the developed world toward fiscal and economic meltdown. There is still time to avert crisis. But time is running short, and the problem is worse than is generally supposed." (pps. iii-iv)

"Aging Vulnerability Index
2003 Edition

"Rankings from Least to Most Vulnerable

Low Vulnerability
1. AUSTRALIA
2. UNITED KINGDOM
3. UNITED STATES

Medium Vulnerability
4. CANADA
5. SWEDEN
6. JAPAN
7. GERMANY
8. NETHERLANDS
9. BELGIUM

High Vulnerability
10. FRANCE
11. ITALY
12. SPAIN" (p. iii)

"Number 3: United States

"Of all the developed countries, the United States faces the most favorable demographic future. With the highest fertility rate and one of the highest immigration rates, it will be far and away the youngest of the twelve Index countries by 2040. Given this demographic advantage, together with a modest Social Security benefit formula, a relatively high rate of elder employment, and a well-developed private pension system, the United States could easily have ranked number one in the Index. But it did not, mostly due to the high projected growth in government health care benefits. The United States ranks third on the benefit-level and net-transfer indicators, but fifth on the benefit-growth indicator, lower than two of Europe's biggest welfare states, Sweden and Germany. Also, unlike Australia or the UK, the United States has no overall policy in place to expand its private pension coverage in the future. The growing relative affluence of US elders, however, augurs well for possible cost-cutting reforms down the road." (p. 21)