Tuesday, November 20, 2012

Life Expectancies and Social Security and Medicare Eligibilities

Paul Krugman has never been one to shy away from making bold expository statements. And his track record seems to be excellent in terms of accuracy. He recently took on what he referred to as the misleading conclusion that since life expectancies have been rising, then it is advisable to raise the eligibility age for Social Security retirement and Medicare in response.
"America’s political landscape is infested with many zombie ideas — beliefs about policy that have been repeatedly refuted with evidence and analysis but refuse to die. The most prominent zombie is the insistence that low taxes on rich people are the key to prosperity. But there are others."

"And right now the most dangerous zombie is probably the claim that rising life expectancy justifies a rise in both the Social Security retirement age and the age of eligibility for Medicare. Even some Democrats — including, according to reports, the president — have seemed susceptible to this argument. But it’s a cruel, foolish idea — cruel in the case of Social Security, foolish in the case of Medicare — and we shouldn’t let it eat our brains."

Krugman justified his argument about Social security by pointing out that while life expectancy at birth has risen considerably, the more relevant number is life expectancy at age 65. This number has increased much less over the years. Let us look at some numbers to justify Krugman’s conclusion. This source provides us with data.

 The numbers chosen are for the total population. The gain in life expectancy at age 65 (5.3 years) was about half that at birth (10.3 years) since 1950. Which number one chooses makes a significant difference when the fiscal ramifications are considered.

Different values exist for men, women, blacks, Hispanics, and Native Americans. Consequently, it can be misleading to apply a single set of numbers to an entire population. Krugman suggested that the most significant discrepancy hidden by the overall numbers are the differences between the wealthy and the poor. This source provides us with an indication of how great that effect can be.



These numbers are based on Social Security Administration data. It is rather startling to realize that there is a difference in life expectancy at age 65 of over 5 years that has developed, depending on whether a person is in the top or bottom half of the income distribution. And that is a rather crude delineation. One has to wonder what the distribution would look like if it was broken down into finer groups such as quintiles.

There is another set of data that takes a different approach in delineating life expectancy. Data exists at the county level that would indicate regional effects, and, indirectly, illuminate effects of poverty. This source provides more startling data by plotting life expectancy at age 50 by county for both women and men.



Life expectancies at age 50 can vary by over ten years depending on the location. There are undoubtedly multiple factors at play in determining these numbers, but it is hard to avoid the conclusion that much lower life expectancy is associated with the lower-income southern states where poverty is often endemic.

One can find locations where the life expectancy at birth does not even attain the current Social Security retirement age. This source tells us that in Quitman and Tunica Counties in Mississippi the life expectancy at birth is a mere 66.1 years. Raising the retirement age or the Medicare eligibility age in locations such as these would have a devastating effect.

We are a diverse population. Attempts to capture the reality of our condition in averages and other global representations can produce false impressions and lead to bad policy decisions.

The data presented here supports Krugman’s statements and suggests that he may have been uncharacteristically timid in formulating them.

"This means that any further rise in the retirement age would be a harsh blow to Americans in the bottom half of the income distribution, who aren’t living much longer, and who, in many cases, have jobs requiring physical effort that’s difficult even for healthy seniors. And these are precisely the people who depend most on Social Security."

"What would happen if we raised the Medicare eligibility age? The federal government would save only a small amount of money, because younger seniors are relatively healthy and hence low-cost. Meanwhile, however, those seniors would face sharply higher out-of-pocket costs. How could this trade-off be considered good policy?"

"The bottom line is that raising the age of eligibility for either Social Security benefits or Medicare would be destructive, making Americans’ lives worse without contributing in any significant way to deficit reduction. Democrats, in particular, who even consider either alternative need to ask themselves what on earth they think they’re doing."

1 comment:

  1. I think he reaches the wrong conclusion. Even the data he presents suggests that the social security retirement age could go up at least five years. The real point is that something has to happen in order for the system to survive the next 80 years (about the time it has already existed). Compared to when it was created, it only makes sense to gradually increase the elegibity age (as has already been done) since the "business model" has current workers paying for retirees (as opposed to pension system rules). The rate of increase in benefit age is actually pretty slow, perhaps even slower than possible increases in life expectancy.

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