Sept. 17, 2015
New Report Examines Implications of Growing Gap in Life Span by Income for Entitlement Programs
WASHINGTON – As the gap in life expectancy between the highest and lowest earners in the U.S. has widened over time, high earners have disproportionately received larger lifetime benefits from government programs such as Social Security and Medicare, says a new congressionally mandated report from the National Academies of Sciences, Engineering, and Medicine. The report looked at life expectancy patterns among a group of Americans born in 1930 and compared those with projections for a group born in 1960.
“Life expectancy has risen significantly in the U.S. over the past century, and it has long been the case that people who are better-educated and earn higher incomes live longer, on average, than those with less education and lower incomes,” said Peter Orszag, co-chair of the committee that carried out the study and wrote the report, and vice chairman of Citigroup in New York City. “What has changed is that the life expectancy gap across different income groups has become so much bigger.”
Men born in 1930 in the highest of five earnings levels who survived to age 50 could expect to live to be about 82 years old, on average, while men born in 1960 in the same earnings bracket are projected to live an average of 89 years – a substantial gain. In contrast, life expectancy for men with the lowest earnings was found to decline slightly, from 77 years old on average for men born in 1930 to 76 years old on average for men born in 1960. The projections for women show a similar pattern, in that life expectancy gains have been larger for higher earners than lower earners.
To evaluate the effect of the widening life-span gap on benefits received from Social Security, Medicare, and Medicaid, the committee simulated the levels of benefits received by a generation with the lifespans of those born in 1930 and compared them with the benefits received by a generation with the lifespans of those born in 1960. (The simulation kept all other characteristics across the groups the same, except for health and mortality.)
The simulation found that for men born in 1930, lifetime entitlement benefits received after age 50 are roughly similar across income groups. Even among those born in 1930, high earners had longer life spans, so they tend to receive more from Social Security, while lower earners receive more on average from Medicaid, disability insurance, and Supplemental Security Income. For men born in 1960, however, high earners are projected to receive markedly more -- $132,000 more -- in lifetime benefits from entitlement programs than is projected for men in the bottom earnings category.
For women, the lowest earners born in 1930 receive $129,000 more in benefits (mostly through Medicaid) than the top earners. However, lower income women born in 1960 are projected to fare far less well: Those in the highest earning bracket are projected to receive $28,000 more in lifetime benefits than those in the bottom income bracket.
Including taxes paid after age 50 in the analysis did not alter the conclusion that the changes in life expectancy are materially affecting the pattern of net benefits across different income categories. The committee also compared the changes to a measure of wealth, finding that higher earners are effectively enjoying a 7 percent increase in their wealth at age 50 from the effects of disproportionately longer life expectancy on the present value of their net government benefits.
“The increasing gap in longevity by socio-economic status is important in itself, but it also means that high earners will increasingly collect some government benefits over more years than will lower earners,” said committee co-chair Ronald Lee, professor of demography and economics at the University of California, Berkeley. “Policymakers considering changes to put entitlement programs on firmer financial footing should take into account how such policy changes interact with these differential trends in life expectancy.”
Although the committee did not make policy recommendations, it analyzed several commonly proposed reform options to determine the likely impact each would have on the gap in benefits received by high and low earners.
In terms of the impact of these changes on program solvency, the committee noted that the most significant effects are seen with raising the normal retirement age for Social Security by itself or raising both the earliest eligibility age and the normal retirement age.
This report builds on a 2012 Academies report, Aging and the Macroeconomy: Long-Term Implications of an Older Population, which summarized existing knowledge in areas such as health and disability, labor force participation, and retirement security, discussed policy implications, and offered research recommendations.
The study was sponsored by the U.S. Department of the Treasury. The National Academies of Sciences, Engineering, and Medicine are private, nonprofit institutions that provide independent, objective analysis and advice to the nation to solve complex problems and inform public policy decisions related to science, technology, and medicine. The Academies operate under an 1863 congressional charter to the National Academy of Sciences, signed by President Lincoln. For more information, visit http://national-academies.org. A committee roster follows.
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Copies of The Growing Gap in Life Expectancy by Income: Implications for Federal Programs and Policy Responses are available from the National Academies Press on the Internet at www.nap.edu or by calling 202-334-3313 or 1-800-624-6242. Reporters may obtain a copy from the Office of News and Public Information (contacts listed above).
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THE NATIONAL ACADEMIES OF SCIENCES, ENGINEERING, AND MEDICINE
Division of Behavioral and Social Sciences and Education
Committee on Population
Division on Engineering and Physical Sciences
Board on Mathematical Sciences and Their Applications
Committee on Long-Run Macro-Economic Effects of the Aging U.S. Population - Phase II
Ronald D. Lee1 (co-chair)
Professor of the Graduate School
University of California
Peter R. Orszag2 (co-chair)
Vice Chairman of Corporate and Investment Banking
New York City
Alan J. Auerbach
Professor of Economics and Law, and
Director, Burch Center for Tax Policy and Public Finance
University of California
Kerwin K. Charles
Edwin A. and Betty L. Bergman Distinguished Service Professor
University of Chicago
Courtney C. Coile
Class of 1966 Associate Professor of Economics
Arjay and Frances Miller Chair in Federal Economic Policy
The Brookings Institution
Dana P. Goldman2
Professor of Public Policy, Pharmacy and Economics, and
Director, USC Schaeffer Center for Health Policy and Economics.
University of Southern California
Charles M. Lucas
Osprey Point Consulting
Deer Isle, Maine
Louise M. Sheiner
Policy Director, Hutchins Center on Fiscal and Monetary Policy
The Brookings Institution
David N. Weil
Professor of Economics
Professor of Economics
University of Michigan
P. and S. Kempner Distinguished Professor in Health Disparities
University of Texas Medical Branch
1Member, National Academy of Sciences
2Member, National Academy of Medicine