Rising Federal Health Care Costs Could Widen the Generation Gap
Policy + Politics

Rising Federal Health Care Costs Could Widen the Generation Gap

A new Obama administration report out this week showing that federal government spending on Medicare, Medicaid and Obamacare surged in 2014 by 11.7 percent after years of relative stability is rekindling a controversy over generational disparities in the government’s spending priorities.

While a considerable chunk of the $844 billion of federal health care spending last year went for children and younger adults, Medicare spending for seniors hit a total of $618.7 billion in 2014 and accounted for 20 percent of total health expenditures.

No one doubts that government spending on the elderly continues to mount. With more and more baby boomers over 65 retiring and taking full advantage of health care and retirement benefits, public spending earmarked for seniors will continue to rise exponentially – with serious long term consequences for the budget.

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Gary Burtless, an economist with the Brookings Institute, wrote this week, “A crucial question for future policymaking is whether rising outlays on programs for the aged will squeeze out spending on programs for children, especially investments in their schooling. Many pessimists think this outcome is inevitable, and they urge us to reduce government commitments to the elderly to make room for spending on the young.”

Among those “pessimists” are Julia Isaacs, C. Eugene Steuerle and other economists and senior fellows at the Urban Institute who recently published the latest annual estimates of federal outlays on children and adults over 65 in a document entitled, “Kids’ Share 2015.” Not surprisingly, the document shows a huge disparity between federal funding for older Americans – many of whom regularly vote and are represented by powerful advocacy groups – and children.

For example, in 2011, federal spending for elderly Americans amounted to almost $28,000 per person over 65. In the same year, per capita spending on Americans under 19 amounted to just $4,900 per person, according to the study. What this means is that older Americans received $5.72 in federal spending for every $1 received by a child 18 or younger.

“Federal spending on children has remained fairly flat, in real dollars, over the past three years,” the Urban Institute report declares. “Between 2012 and 2014, spending fell for children’s education, nutrition, social services, and early education and care, and increased for children’s health. In the future, overall federal spending is projected to increase substantially, but virtually none of the additional funds will be directed toward children.”

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As their argument goes, the “share of the economic pie” devoted to children is scheduled to decline.” Practically all of the projected growth in federal spending will go for one of three things: retirement and health spending on adults and interest on the national debt. “As federal spending continues to outpace revenues, interest payments continue to rise; payments on the debt will soon outstrip federal spending on children, underlining the extent to which the federal budget has been made dependent on past policy decisions rather than on current assessments of how best to invest in the future,” the authors wrote.

The argument reflects the conventional wisdom of many lawmakers and policy experts – not to mention the non-partisan Congressional Budget Office -- that the nation is locked into a time-honored network of retirement and health care programs for the aged that will become ever more costly  in years to come. In the process, those programs will crowd out new spending for other priorities vital to younger Americans, including education, research and job development. While the major federal programs for the aged seemingly run on automatic pilot, with spending tied to change in the cost of living, spending on many federal programs that assist children are financed out of discretionary programs requiring periodic reauthorization.

Federal expenditures on children in 2014 totaled $463 billion, which is practically the same as it was in 2013, according to the Urban Institute report. “This includes $354 billion in outlays or 10 percent of the $3.5 trillion spent by the federal government in 2014, and nearly $110 billion in tax breaks for families with children,” the study stated. “The 10 percent spent on children compares with 44 percent spent on adults.”

Related: Medicare Sees Striking Increase in Specialty Drug Costs

But Burtless, a former Department of Labor economist, takes a contrarian view. In his essay first published by Real Clear Markets, Burtless argues that while federal spending indeed is heavily concentrated on the elderly, state and local government spending “tilts toward programs that help children, notably, through public school budgets.”

Burtless argues that while seniors receive $5.72 in federal spending for each $1 received by someone under 19 years of age, those young Americans receive $10.11 in state and local spending for each $1 someone who is 65 or older receives.

“To be sure, total federal spending is considerably greater than that of state and local governments, but the imbalance of public spending on the young and the old is less extreme than federal budget statistics suggest,” he wrote.  Moreover, government spending on children's health has also increased over time as public insurance for children has been expanded. “In 2014 just 6 percent of Americans under age 19 lacked health insurance for the entire year. The only age group with higher health insurance coverage was the population past 65, which is covered by Medicare,” he wrote.

In an interview on Thursday, Burtless expressed pique with progressives and others who make the case that government-spending policy is heavily stacked against younger Americans. “I just don’t think that they’re looking at the evidence,” he said. “If they know something about the evidence they don’t want to mention the evidence because what they would prefer to do is make people worried that this is an inevitable clash.”

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“I think their hearts are in the right place,” he added. “I too am disgusted whenever I hear governors and state legislators and conservative members of the Congress say we don’t have enough money to fund our public schools or we don’t have enough money to pay the teachers or the pensions for the janitors. I think that they are wrong, but I also think the way public decision makers have operated over the past 60 years has been consistent with the view that actually they do summon up money to pay for obligations for the children under 18. Whether they do to the same degree for people between 19 and 25 or 26 is another question.”