How America Can Afford to Grow Older: A Vision for the Future

the National Press Club, Newsmaker Luncheon

By: William D. Novelli, CEO, AARP | Source: AARP Press Center | February 9, 2005

Can America afford to grow older? And can we do so with intergenerational fairness—that is, without sticking our children and grandchildren with the bills? This is one of the most important issues of our time.

David Walker, Comptroller General of the United States, stood at this podium and said that, "The U.S. faces a long-term deficit that will only increase as the baby boomers retire. The resulting financial imbalance will test the nation's spending and tax policies."

Columnist Robert Samuelson wrote that, "the central distributional issue of our time is not between rich and poor. It is between retirees and non-retirees."

And a front page story by Jonathan Weisman in the Washington Post just last week declared that an "Aging Population Poses Global Challenges."

Fed Chairman Alan Greenspan, the Congressional Budget Office and others have reached similar conclusions.

Clearly, there are challenges with an aging society. So again, the question: can America afford to grow older without economic train wrecks, without pitting the needs of the old against the young, and without leaving future generations to clean up the mess?

Of course we can. We are the richest nation in the world and the best equipped in virtually every way to reinvent our systems and programs. And besides, what is the alternative?

When all the babies showed up after World War II, did we say, "Well, sorry, we can't afford this demographic change…can't afford to build schools and train pediatricians and cope with the costs of all this?" No, we made the necessary investments, and as a result, become a better society and the most powerful and influential nation in the world.

Today's America can afford to grow older, we will benefit from it as a society, and AARP will play a constructive and important role in making it happen. I came to AARP five years ago for two reasons:

1. The inspiring mission of improving the quality of life for all as we age, by leading positive social change and delivering value to our members.
2. The demographic revolution of boomers coming into their older years meant that AARP could play an important role in the changes that would inevitably follow.

And now, the time is here. As a nation, it's time to cut the doom and gloom and attack the issues, following John Gardner's approach. He said that, "We are all faced with a series of great opportunities, brilliantly disguised as insoluble problems."

As we look at an aging America, we face three great opportunities:
1. An opportunity to transform the nation's health-care system;
2. An opportunity to strengthen our retirement system;
3. An opportunity to create more livable communities.

First, our health-care system is out of whack. Dr. Henry Simmons, President of the National Coalition on Health, calls it "A Perfect Storm," with three dangerous trends combined: rising costs, increasing millions of Americans without insurance coverage and poor quality of health care delivery.

Transforming the health-care system is perhaps the greatest challenge facing our nation today. But it may well be the most important thing we can do to improve the quality of life for everyone, as well as to deliver care more rationally and cost-effectively.

Many people look at the growing cost of Medicare and Medicaid, along with the aging of the population, and conclude that these programs are unsustainable budget breakers.

But most factors that contribute to the rising costs of Medicare and Medicaid—growth in population and utilization, costs of new technology and drugs, and soaring prices—also drive up the total cost of health care. This affects everyone—individuals, businesses, and government at every level.

Look at Medicaid, the nation's largest health insurance program, providing necessary care for one in every six people. It is the safety net for children in poverty, for our aging parents and grandparents needing long-term care, for those with disabilities, for other vulnerable people. It helps pay the bills for two-thirds of the 1.4 million people in nursing homes.

Medicaid spending, which grew by about a third between 2000 and 2003, was driven primarily by growth in enrollment, and like the rest of health care, fell victim to rising prescription drug and hospital costs.

As many employers drop health insurance—or it becomes too expensive for employees to pay—people turn to Medicaid as a last resort. Much of Medicaid's spending growth reflects a shift from private to public spending, not additional dollars being spent on health care overall.

Now Congress and the states are wrestling with the high cost of Medicaid. HHS Secretary Leavitt has called for wide-ranging changes to control costs. Governors, including Vilsack of Iowa, Warner of Virginia and Pataki of New York are searching for ways to bring their costs under control.

There are ways to make Medicaid more efficient and reduce costs, including buying prescription drugs more cheaply and redirecting spending more toward home and community-based care and less on nursing homes. And AARP can help.

But capping, or simply cutting federal spending only shifts the burden to the states and/or increases the amount of uncompensated care among doctors and hospitals…which in turn would inevitably be shifted to employers and employees as higher premiums.

The solution lies in taking a long-range view and attacking the problem at its source: our dysfunctional health care system, which is grossly inefficient, and often does harm when it is supposed to be doing good. It doesn't make sense to fine tune individual programs when the whole system is broken. We can make health-care much better—and constrain costs in the long run. Here are seven ways to do it:

First, we need to achieve the efficiencies and savings that information technology can deliver. It helps achieve many of the other goals for transforming health care.

Most medical records are still kept on paper and mailed or faxed. This is painfully slow and costly. So are prescriptions, which would be more accurate, faster, and cheaper if they were "e-prescribed," as is now called for in the new Medicare law. Some hospitals and practices have good internal IT systems, but they aren't connected. So your primary care physician and, say, your orthopedist cannot be on the same virtual page at the same time.

Creating this infrastructure will cost us money now. But in the future there will be a huge return on investment—and we can pay for it ourselves, not put off the day of reckoning for the next generation.

The second way to improve the quality and cost of care is to reduce medical errors, which result in hospitalizations and deaths in the hundreds of thousands. IT has been shown to reduce medical error- such as wrong dosages or the wrong medication-by as much as 90 percent.

And reporting a medical error should not be a ticket to a lawsuit. Errors can be corrected if they are understood. We need better ways to handle malpractice claims and national standards with regular review. We can't have medical malpractice reform until we reform the practice of medicine.

Third, we need to promote health and healthy behavior from infancy onward. There are some things we can't do much about, such as genetics and accidents. But we can affect the majority of our health outcomes, and we need to take personal responsibility for our health and the health of our children and grandchildren.

At the National Institute on Aging they say that, "Osteoporosis is a pediatric disease with geriatric consequences." And, as we say in our AARP program in 27 states to promote physical activity, "If you've got a moving part, move it."

The largest increase in chronic diseases is among people in their 30s, including obesity and diabetes. In nearly all cases, these problems are caused by behavior-by eating too much, by exercising too little.

This leads to my next point: we need more focus on chronic care management. Chronic conditions are more and more common, yet our health care tends toward acute and episodic care, an expensive misallocation of resources.

About five percent of Medicare beneficiaries account for about half the money spent. Many of these people have multiple chronic diseases. Here again, the Medicare law breaks new ground by adding chronic disease management.

Fifth, we must move toward a prevention model of health care. We can't prevent all disease, but we can do much more to keep people out of doctors' offices and hospitals. This is just what AARP hopes to do in our new partnership with the Centers for Disease Control and Prevention.

Another way to prevent hugely expensive and tragic diseases is to fully support the National Institutes of Health, from which cures and treatments for Alzheimer's, diabetes and Parkinson's, for instance, would prolong healthy life and save billions.

Sixth, we must bring down the high costs of prescription drugs for all Americans. These drugs keep people independent, working and out of hospitals and nursing homes…but not if people can't afford them. We need to invest in evidence-based drug research, greater use of generic drugs, innovative strategies like pooled purchasing, the wise use of pharmaceuticals and safe importation from other countries.

Finally, none of these steps will help without access to the health-care system. Over 45 million Americans lack health insurance; many are working people or kids in families where at least one parent works.

The uninsured tend not to see doctors, and then go to the emergency room when something is serious or life-threatening. This is the most expensive and least effective way to deliver medical care. We absolutely must solve this problem, and not by simply shifting costs from one sector of the economy to another.

Each of these seven things is tough to achieve. None is impossible. They will improve the quality of care for all Americans, and give us much better value for our money. They will help make Medicare and Medicaid sustainable over the long run.

So let's get after it. This investment will make life better for future generations, and we'll pay for it as we go along, not pass it on to our children and grandchildren. AARP can help.

Now, let's turn to economic security. We can enhance our retirement system by strengthening Social Security, creating more pensions and savings and providing employment opportunities for people as long as they want or need to work.

Social Security is the most successful domestic program in our history, a risk-free, guaranteed pension that on average replaces 40 percent of a retiree's wages.

President Bush has put Social Security high on the nation's agenda, which gives us the opportunity to strengthen the program for future generations. By now you are aware of the arguments and the numbers and the ideas that are circulating. And you know that AARP is, and will be, deeply engaged. Now is the time to act, and spread any costs over all generations, rather than leaving it to our kids and grandkids to shoulder the load.

Unlike health care, Social Security does not need a radical overhaul. We don't have to dismantle this successful program in order to save it. There are reasonable, moderate changes we can make to achieve solvency and fiscal soundness, just as has been done before.

The President has said that all ideas are welcome. Here are a couple of examples that, combined, would get us well over half way toward solvency, and there are other possible options to consider:

• Restore the total wages taxed by Social Security to 90 percent of nationwide earnings. This would move the cap from $90,000 in 2005 to $140,000 — perhaps phased in over a decade. It would lower the projected shortfall by some 43 percent.
• Diversify Trust Fund investments in a total market index fund, like most pension funds, to get a higher return, which could fix about 15% of the problem.

Reasonable steps such as these, including possibly adjusting benefits, are enough to strengthen Social Security for the long term. But taking money out of Social Security payroll taxes for private investment accounts would worsen the solvency outlook rather than improve it, and could lead to large benefit cuts. This approach is risky, hugely expensive and unnecessary.

Strengthening Social Security is the cornerstone of providing economic security for future generations, but creating and protecting pensions and savings are also essential.

Defined-benefit pensions are being replaced by defined-contribution plans like 401(k)s and IRAs. This shifts the investment risk to the individual. We have long championed improvements in these private accounts. But for a secure retirement, we need these savings in addition to Social Security, and definitely not at the program's expense.

The federal government's retirement system—the Thrift Savings Plan—does this now. Ironically, some of the supporters of private accounts at the expense of Social Security cite this program. Well, it's precisely the model we would like to see: Social Security as the foundation, supplemented by a private pension and savings.

As Henry Aaron at Brookings has shown, increasing national saving is a proven way to grow the economy while lessening the burden on future generations. But the savings rate in America is abysmally low.

People need to save more, and there are two steps we can take that are relatively simple. First, new employees joining companies with a 401(k) usually have to decide whether to join the plan. But if they were automatically enrolled and had to make a conscious decision to opt out, savings would increase dramatically.

The second way to increase savings is to provide an option for those receiving tax refunds to have all, or a portion of it, automatically deposited into the individual's savings. According to the experts, these two steps alone could double the nation's savings rate and provide people with a much greater retirement income.

About half our working population does not have a pension plan. For these people, there are few options currently available to save for retirement. One thing that is available is the saver's credit, which was enacted in 2001.

But the saver's credit is small, it expires in 2006, and it is not refundable. It should be enhanced and made permanent.

We also need to explore bigger ideas, such as a universal plan that would require employers to make available to each worker the option of a 401(k)-type retirement account.

Chairman Bill Thomas of the House Ways & Means Committee and Chairman Jim McCreary of the Subcommittee on Social Security have both said they want to think outside the box about combined strategies to strengthen Social Security, increase national savings and perhaps address the problem of long-term care. AARP stands ready to help.

As people age, there is more they can do for themselves. Among the most important is to continue to work, if they are able. There are huge benefits to this.

Older workers continue to earn money in addition to their income from Social Security and pensions. They stay engaged and productive. And while getting their retirement benefits, their wages and salaries are still subject to FICA withholding, so they continue to pay into a system that is paying them. Finally, mature workers will help avert the labor shortages from the retirement of the boomers.

To speed up this trend, we need to reduce age discrimination, which still persists. We need to educate employers about the ability and affordability of older workers. We must inform older people about the opportunities and advantages of work. And we need government policies for employers to hire older workers and for individuals to keep working.

AARP is engaged in all this. This month we will launch a major workforce initiative that began with our Home Depot partnership and now involves many major employers, as well as the governors of a number of states.

So, with moderate adjustments to Social Security, with increased individual savings and investment, and by advancing the idea of continued work, America can afford to grow older without shifting the burden to younger generations.

Now, let's turn to our third opportunity—creating more livable communities. Most older people want to stay where they are-at home, in familiar surroundings. This may seem obvious, but there are many barriers to living in our own homes and communities for as long as possible.

To remain independent in this automobile society, people need to be able to drive safely as long as possible. And when they can no longer drive, they must have ways to avoid social isolation.

Many communities lack the features and services—from pharmacies to super markets to doctors to churches—that people can get to without driving.

So, how do they get around? In cities with mass transit, there are obvious possibilities. But in the suburbs—where nearly half the population lives—mass transit is not always available. And in rural communities, it is simply not there.

A second key to helping people age independently in place is building or modifying houses to more easily accommodate older people. Successful aging in place means that people can afford to live in decent housing that meets their needs and helps them remain independent.

There is a powerful message in this about quality of life for older people and their adult children, who are often caregivers. And continued independent living also means substantial cost savings for society and for families.

Congresswoman Barbara Jordan said, "What people want is… an America as good as its promise." Achieving this requires a balance between what society can do and what we must do ourselves. We may have to pay a little more, exercise a little more, save a little more, and maybe work a little longer. But we can do it.

I've talked about health and health care, about retirement security and about livable communities. With the changes I've described, America can afford to age, and we'll all benefit from a society in which the wisdom and time and efforts of older people are a vital part of our lives.

But the longer we study and debate and wallow in gloom and doom, the worse our problems will become…and the less time we will have to solve them equitably. The sooner we take on these challenges, the less likely it is that we will leave them for the next generation.

I have said throughout my remarks that AARP is engaged. What does that mean? I mean that through our members and volunteers, such as Jeanne Tilghman, our publications and partnerships, our state offices, through products and services that contribute to social good, and through legislative and legal advocacy, we are determined to make a difference for America. We have a strong social impact agenda, and we're on the job.

Back in my college days at Penn, we had a trainer, a white haired Philadelphia Irishman named John Brennan, who would tape you up, shake your hand and with a twinkle in his eye, say, "There you are. I'm glad you met me." I sometimes think of John Brennan as the kind of guy we represent at AARP.

We stand up for the John Brennans and their families. No permanent friends, no permanent enemies in Washington, just enduring interests.

George Bernard Shaw said that, "We are made wise not by the recollection of our past, but by the responsibility of our future." The responsibility of our future is to join together to create a country:

• Where government stands sentry over vital programs like Social Security, Medicare and Medicaid and takes reasonable and responsible steps to strengthen them for generations to come;
• Where corporate giants and small businesses alike prize the experience of older workers and reject age discrimination as bad business;
• Where people of all ages receive quality health care they can afford;
• Where parents and grandparents can remain in their homes and active in their communities for as long as possible; and
• Where all Americans can afford to grow old with dignity and purpose and continue chasing their dreams;

We can do this. And when we do, we will not only fulfill our responsibility to future generations, we will create an America as good as its promise.