Centenarians: Breaking the Budget

02-0320-6373432

Mrs. Jones

Economics

07 August 2014

Centenarians: Breaking the Budget

Due to the continual growth in health science and technologies, there has been a dramatic increase in centenarians. While this is a wondrous example of just how far modern medicine has come in terms of health science and could very well be phenomenal for our society over all, it does cause some major obstacles for the US economy.

OBSTACLES AND SOLUTIONS

OBSTACLES: The first, and main concern is the affects life expectancy growth has on the healthcare industry and individual healthcare costs. When assessing this concern, it’s important to understand the intricate financial structure which is utilized by patients, insurance companies, and healthcare providers. The healthcare industry consists of hospitals, doctor’s offices, pharmacies, and all the equipment and personnel that is used to keep citizens alive and well by providing health care services for a wide variety of ailments. With such a variety of services, it is safe to assess that there is also a wide range of costs to accompany these services. There are also many illnesses and/or medical conditions that develop or worsen with age. Some of these treatments require long term care and ongoing treatments. So, how do these varying factors affect costs? They impact the system in a sort of circular methodology. Doctors, pharmacies, & other medical providers determine their fees based on the cost of service, but must also inflate these fees to a certain extent to account for an expected amount of uncollected payment amounts. This inflation in cost is felt by insurance companies, and insurance companies must also inflate their premium costs to a certain extent to ensure there is enough available funds to cover unexpected costs incurred by their insureds. These costs are then spread out between the individual policy holders in the way of premium costs and deductible amounts. To paint a better illustration, let’s compare two families. Family number one incurs zero medical bills over the fiscal year. Family number two had some unexpected illnesses, and incurred $5000 in medical expenses over the course of the year. Both families paid the same in medical insurance premiums of $3000 each, totalling $6000 paid to the insurance company. In this scenario, the insurance company would utilize the premiums from both families to cover the expenses incurred by family two, and have $1000 remaining to cover its own overhead. This is, of course, a very basic example meant only to scratch the surface of the cost structure. Understanding this basic concept, and realizing that elderly people tend to necessitate higher levels of medical care means that doctors and insurance companies must adjust to this dynamic of insureds, and thus implement ever growing inflation rates on costs to avoid financial ruin. This will then increase the cost of individual healthcare and the cycle will continue, due to patients being unable to pay for the increase.

Another main concern is the impact on Social Security. Social Security is a mandatory government retirement plan which taxes a person’s paycheck and allows the government to hold that money in “safe-keeping” until said person reaches retirement age. Once retired, the money that has accumulated is paid back to the individual piece by piece. So let’s say that someone has worked from the point that they turned 16 to when they turned 60. That gives them a total of 44 years in the workforce. This person worked 40 hours every week for the entirety of that 44 years, and made minimum wage at $7.25 an hour. Given the fact that there’s about 52 weeks in a year, that comes to 2,288 40 hour weeks totaling 663,520 dollars earned in gross (pre-tax) salary by that person. The current Social Security tax rate in the United States is 12.4%; however, the employee only pays half of this amount, or 6.2%, out of their paycheck. The other half is paid by their employer. That means, this person’s total social security balance at the end of their working career, or at retirement age, would be roughly $82,275. Once this person retires at age 60, the government begins to distribute this amount back to them in installment checks based on their expected lifespan. The estimated life expectancy according to Social Security is 76 for males and 81 for females, however for the sake of this discussion, we are going to use 100 as though that was the actual rate. This person then would have 40 years of expected retirement, which would mean the government would send them a monthly Social Security check of $171.40. Let’s put that into perspective for a moment. Minimum wage pays a full time employee roughly $1,190 a month. That’s quite a big difference. It’s obvious by this example that the system is not designed nor equipped to be the sole source of income for a person into retirement. And what happens when a person outlives their expected lifespan or doesn’t live as long as expected? As death is an unpredictable inevitability for everyone, there had to be rules implemented with this type of a system. When someone dies before expected, the money that is left in their Social Security is added to their spouse’s social security fund. If the deceased is not married and does not have anyone specified in their will to receive their Social Security, it remains with the government to help fund anyone who has run out of Social Security income, by living longer than expected. As the life expectancy for people continues to grow annually, this overage fund is ever diminishing and it is expected that the social security system will soon go bankrupt leaving many people without this