Automation and Longevity Impacts on Social Security and Medicare

Brian Wang |
March 15, 2019 |

Some people believe that successful antiaging would have a huge impact on social security and Medicare. They believe that if breakthrough medicine reduced the death probability each year three times, then this would bankrupt social security or Medicare. If someone who was 90 had one-third the death probability then it would be like they were 80 before the improvement. They went from a 16% chance of dying in that year back to 5.9% when they were 80.

In order for there chance of dying to drop that dramatically then their overall health would have to massively improve.

If the medical breakthrough could drop the chance of death for someone who is 90 by about 60 times, then the chance of dying and health would be that of someone who was 50. They would have 0.5% chance of dying in that year.

The health improvement would reduce the costs on Medicare.

Unfunded Social Security and Medicare

An important policy aspect to remember about Social Security and Medicare is that they are unfunded and pay as we go systems.

The Urban Institute tracks how much individuals pay in and

get out in terms of benefits from social security and Medicare.

A couple retiring now would have paid in about $750,000 and would get out about $1 million in benefits. 80% of the people are now living to full retirement age. Only some of those people are living long enough to get benefits beyond what they paid into the system.

The solvency of the system in each year depends upon the workforce and taxes paid in versus the benefits that are paid out.

The Social Security

program is currently forecast to run out of reserves in 2034. Benefits would have to be reduced by about 25% to keep spending within available annual revenue. The alternative to benefit reduction would be to increase taxes. Restoring permanent solvency to the program would require raising the payroll tax rate immediately from today’s combined employer-employee rate of 12.4% of taxable payroll to 15.2%. Alternatively, Social Security benefits would need to be cut on a permanent basis by about 17%.

Those figures assume continued trends in longevity and employment. If there was a massive increase in unemployment from automation or just a prolonged bad economy then the solvency of the systems could fail more quickly.

There is a small Social Security trust fund. Social Security and Medicare are paid out of general tax revenue.

In 1950, the average American lived for 68 years and retirees were supported by 16 active workers. In 2019, the average life expectancy is 78 and three workers support every retiree.

In 15-20 years, it is projected that only two workers will support each retiree their benefits. If there was an immediate increase in longevity then this could happen a few years earlier, but only if the extra longevity was not good enough to make seniors healthy enough to work again.

Canada’s government pension system has an automatic increase in the full retirement age to match increases in longevity. These are the conceptually simple adjustments around age and eligibility which enable benefit system solvency.

Policymakers would have 10 years or more to adjust to radically longevity. Sudden and persistent reductions in employment could trigger the need for emergency policy fixes.

SOURCES – Social Security, Medicare

Written By Brian Wang

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