The Coming Health Crisis: Who Will Pay for Care for the Aged in the 21st Century?

• Author: Chirikos, Thomas N.

This book examines how future demands for acute and chronic medical care services by the population over 65 years of age are being shaped by current demographic, economic and health trends, and how both public policy and individual behavior must be adjusted to ensure that these demands are adequately met. Wolfe argues that we will not be able to rely in the future, as we do now, mainly on intergenerational transfers to finance health care for the aged; instead, he believes that self-financing mechanisms must be fostered to increase the likelihood that elderly persons receive the care they need.

The general lines of the analysis may be summarized as follows. First, the characteristics of the aged population that are expected to raise the demand for medical care services rapidly over the next fifty years are assessed, with special attention focused on changes in the health status of this population. Current demand projections depend critically on whether mortality improvements at older ages will "rectangularize" the aggregate survival curve while simultaneously "compressing" the duration of morbidity and disability spells; they also depend on the extent to which aged health care spending continues to be concentrated in the last year of life. After sifting the conflicting evidence on these scores, Wolfe concludes that significant increases in the demand for health care by aged persons, especially long-term care services, are indeed likely to occur. Next, the issue of financing these services is taken up. The declining rate of growth in the payroll tax base that threatens transfers from current workers to beneficiaries in pay-as-you-go financed insurance programs such as Medicare Part A is detailed. Attention then turns to the potential for shifting a portion of the burden of financing aged health care back to individuals through self-financing mechanisms. In this latter context, the author explores adverse selection and moral hazard problems that must be overcome for private (acute and chronic) insurance coverage of retired elderly persons to expand. He then reviews the options for financing the future health care demands of the aged. In the case of acute care, the inventory or menu of policy choices includes finding new revenues for public programs, prefunding public programs, increasing beneficiary cost-sharing as well as rationing; in the case of long-term care services, it includes changing the structure of Medicaid, mandating insurance...