Health & Human Services

Elder Scare

Health care costs for retirees are like a hurricane that's gathering strength in the ocean before it makes landfall.
by | November 2004
 

Pity the poor Southern states. After years of robust population and revenue growth from the in-migration of retirees--folks in their fifties and sixties who play golf, buy nice homes and the occasional boat--those states are now worried sick.

A generation or two of seniors is now pushing the eighty or ninety mark, and those gray-to-white heads are increasingly fragile, vulnerable and ill. Some may decide to move back to the colder climates to be near their middle-aged children or adult grandchildren, but many will stay in place even as their health care needs increase beyond their ability to pay for them.

Nearly one-fifth of senior residents in the South lack health insurance, and on top of that, many of those older elders will need long term care, which isn't covered by the federal government's Medicare program. While many seniors arrived in their new states 20 or 30 years ago with substantial bank accounts and adequate pensions, inflation has taken its toll, as has a longer-than-expected life span. In short, many have outlived their assets--or soon will. All of which has many a Southern governor and legislator concerned about how well prepared their state is to pick up the tab.

If you still have some tears left, prepare to shed them for General Motors. While soaring health care costs are a problem for every employer, they are worse for a big, old company such as G.M., which offered its workers and their families lifetime health care coverage back when they--and the company--were in their prime. Today, several G.M. plants have been shut down and surviving assembly lines are more productive. The bottom line is that G.M. now covers the health care costs of 1.1 million people, but fewer than 200,000 are active workers--the rest are children, spouses and retirees. This last group is living longer than anyone imagined they would--indeed, a handful of G.M. retirees aged out of assembly-line work in the 1950s. But it isn't just the longer life spans that are hurting G.M. When the company negotiated with unions for the generous health benefits, health care costs were 5 percent of GDP; now they're 15 percent. Per- capita spending on hospital care has, in today's dollars, more than quadrupled since 1965.

Other companies in other industries face similar pressures. Lucent Technologies, for one, announced a few weeks ago that it would make cuts in its retiree health care benefits. And United Airlines said during its bankruptcy proceedings that it will no longer pay into its retirement account.

We all know that health care costs in general are a fiscal problem for both the private and public sectors, and fewer and fewer big companies still pay premiums for retirees. Clearly, those that do are looking for ways to stop. For state and local governments, the costs for retirees are like a hurricane that's gathering strength in the ocean before it makes landfall.

It wasn't supposed to be this way. Back in 1965, Medicare, which the federal government funds, was created to take care of the health care needs of those 65 and older. It picks up some--but certainly not the lion's share--of retiree medical costs and doesn't come close to a General Motors type of benefit package. The biggest problem is Medicaid, which the states co-fund with the feds. Over the years, the cost of care for the elderly has shifted to that program. Leighton Ku, a health policy analyst with the Center on Budget and Policy Priorities, draws the statistical picture this way: 75 percent of the overall cost growth for Medicaid is care for the aged and disabled. Twenty years ago, Medicaid paid 30 percent of those costs; Medicare, 70 percent. By 2012, Medicaid will pay 45 percent; Medicare, 55 percent.

And that's why Southern governors are hitting the worry beads. Longer life expectancies, spiraling costs of living and health care, and the growing tide of people reaching their older, sicker years will bring a steep challenge to states. At a workshop at the Southern Governors Association meeting this summer, governors talked about focusing on ways to bring down the costs of long term care and, as Alabama Governor Bob Riley put it, "make hard decisions about what quality of life means and how much we're going to pay for it."

Both Southern states and G.M. are suffering from the same messy and expensive retiree health care problem. And it may soon lead to some unconventional thinking. A survey released in September by the Civil Society Institute, a think tank in Newtown, Massachusetts, found that two-thirds of the 1,020 adults surveyed said they supported a health care "guarantee" similar to the Canadian or British models and that 78 percent would like to see government regulate health care in a way that would be similar to utilities such as gas and water. Pam Solo, president of the Civil Society Institute, says the survey results show that "Americans are now prepared to embrace some tough ideas."

If so, they're light-years ahead of their leaders.

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