Tab for Baby Boomer Deaths Could Kill Taxpayers

By Christine Hall | July 7, 2008 | 8:29pm EDT

( - Dying is expensive and taxpayers can expect a big bill in the decades to come as the large Baby Boom generation grows older and begins to die off, according to a new study.

"It's a lot more expensive to leave this world than to enter it," said John C. Goodman, president of the National Center for Policy Analysis. "The reason people aren't more aware of the expense is because most of it is hidden" in big government programs, namely Medicare and Medicaid.

The good news for the deceased and their families is the government will pick up about 65 percent of the cost through those subsidized programs. But that may be bad news for taxpayers who fund the programs.

Thanks to the Baby Boomers, in just a few years, the cost of dying will soar, according to the calculations of Texas A&M University researchers Andrew J. Rettenmaier and Zijun Wang.

According to the study, nearly 1/3 of the annual Medicare budget is spent on dying beneficiaries who make up less than 10 percent of the total Medicare caseload.

"A lot of the problem arises because people who are spending this money are spending other people's money," said Goodman. "If a person and his family [are] spending their own money ... they'd be more frugal about it. You might not engage in pointless therapy.

By spending someone else's money, there is no incentive for the doctor, hospital, patient or patient's family not to spend, Goodman continued.

"If patients were able to profit from saving money, if every dollar they save [earned them] 50 cents, then we think you'd get different behavior," Goodman said.

Medicare should be reformed to encourage the use of medical savings accounts (MSAs) or, perhaps, to give cash to families if a terminally ill patient "does hospice or goes home or opts for other care," said Goodman.

Under the current system, the only way to get benefits out of Medicare is to be in the hospital and to use medical resources, he noted.

Even liberal Democrat Sen. Ted Kennedy (Mass.), who chairs the Senate health committee, could agree with such reforms, Goodman believes.

"I think everyone realizes when you're spending a third of your entire budget on people in the last two years of their lives that there's probably better uses for some of those dollars," said Goodman.

But Marilyn Moon, a health care analyst for the Urban Institute, doesn't agree that end-of-life spending is excessive or that the big spenders are those who die.

"If you look at the top five percent of spenders each year ... whether they die or not, they account for 45 percent of Medicare spending," said Moon. Also, more Medicare dollars are spent on people who are expected to live than on those expected to die, she said. "So if we want to go after the big spenders, we don't even have to go after people who die."

The bigger problem, she believes, is equating high costs with frivolous spending.

"I believe that while we should be very careful about discouraging unnecessary use of services ... when you look deeper, all evidence points to the fact that this is not a massive problem," she said.

In any case, said Moon, "care leading up to death is often when people are the sickest, and that's when you think you should be spending money, because you don't always know it's a terminal illness."

According to Medicare's trustees, under current law, taxes that fund Medicare hospital insurance are projected to fall "increasingly short" of expenditures after 2015.

And Medicare expenditures as a percentage of gross domestic product (GDP) are projected to increase "rapidly," from 2.4 percent in 2001 to 5.0 percent in 2035 and then to 8.4 percent in 2075.

To plan for big end-of-life expenses as well as Medicare's overall budget woes, Moon believes the solution lies, not in saving money for the future or, as Goodman suggested, offering cash incentives not to spend, but in payroll tax increases.

Workers and employers each now pay a total of 2.9 percent of employee wages to pay for Medicare hospital insurance.

"I don't think that [tax increases] have to be as burdensome as some folks believe," said Moon. "When I look at the projections and how much better off we'll be as a society, I don't see that it's going to be that big a deal. I don't want mom living with me, personally."

Politically, though, Moon doesn't foresee Republicans or Democrats making a big push for Medicare reform anytime soon.

"We're still in the 'pretend era' of Medicare reform," she said. "'Let's pretend that if we turn it over to the private sector, poof, health care will magically be cheaper, even though there are going to be twice as many people on the system.' There's not enough money to be saved that you can pay for a doubling of the population.

"And on the other hand ... you can't say, 'we don't have to do anything, and poof, magically it will work out.'"

"There's too much fear by the Democrats that they'll get painted as tax and spend liberals and too much fear on the Republican side that they'll look like they're Democrats," said Moon. "Therefore nothing happens."

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