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Investing In Children

PERSPECTIVE

Intergenerational Equity And Public Spending

Abstract

 
Concerns over public spending for elders and children are not new. Some of our previous work, combined with the analysis by Susmita Pati and colleagues in this volume of Health Affairs, documents a substantial divergence of social welfare spending for children and elders between 1965 and 2000. Looking to the future, our concern is that social welfare spending for children and elders will be driven more by political concerns and macroeconomic trends than by the needs of the two populations. We argue that the country needs to adopt a new fairness doctrine in allocating social welfare resources, whereby the needs of both groups are met.

Advocates for children point out that a distressing number of children remain in poverty.³ Moreover, it appears that little progress has occurred in reducing the size of the uninsured child population despite the Medicaid expansions and enactment of the State Children’s Health Insurance Program (SCHIP).⁴ While even the most ardent advocates for children stop short of arguing that aging interests have an explicit agenda to shortchange other groups, the perception in some circles has been that under normal conditions of revenue constraints in the public sector, the aging lobby has been both less yielding and more effective in protecting the status quo and in demanding additional benefits. Advocates for the elderly disagree and suggest that such criticisms amount to victim blaming.⁵

Recent trends in population, prosperity, and health have tended to reinforce concerns about shifting public priorities. The U.S. demographic composition has changed in recent decades, as the numbers and longevity of the elderly have grown steadily while fertility rates have fallen.⁶ Personal incomes of the elderly have increased in recent decades, and the number in poverty has fallen dramatically, while incomes of families with children have been comparatively flat.⁷ Although data on health status are less easy to interpret, it seems clear that older people are living longer and that the quality of their extended lifespan may also be improving.⁸ By contrast, while childhood mortality, especially infant mortality, has fallen, improvements in broader measures of children’s health have proved far more elusive.⁹ In fact, over the past four decades the percentage of children with limitations in their activities because of chronic health problems has more than tripled.¹⁰

Thus far, consideration of spending trends and "trade-offs" between different vulnerable populations has been more the subject of commentary than of systematic, empirical analysis.¹¹ Scholarly attention to patterns of relative spending began with a paper by Samuel Preston, who argued that on selected prosperity and health indicators, the elderly had fared far better than children; that outcome disparities were associated with the spending patterns of government, which strongly favored the elderly; and that competition between the young and old for scarce public resources could only intensify in the future.¹² Despite various attempts to cast the discussion of trade-offs in more moderate tones, the scholarly and popular portrait of generational spending has primarily been one of tension, cleavage, and competition.¹³

Social Welfare Spending Trends: 1965–2000

Top Social Welfare Spending Trends:... Looking Forward Analysis A New Fairness Doctrine Editor's Notes NOTES

 
Some of our previous work provided the first empirical analysis of social welfare spending for the young and old that linked spending data with macroeconomic trends and policy developments over time. In a report on U.S. public spending from 1965 to 1986, we showed that the shares of social welfare spending benefiting children and elders shifted considerably.¹⁴ In 1965, 37 percent of all social welfare expenditures (including those for working-age adults) were directed toward children. By 1986, only 25 percent were aimed at children. In contrast, the share of social welfare spending directed toward the elderly rose from 21 percent to 33 percent. It should be noted that while the shares of social welfare spending changed greatly, both groups benefited from real increases in spending. Between 1965 and 1986 per capita social welfare spending measured in constant dollars grew by 107 percent for children and 191 percent for elders.

The analysis by Pati and colleagues of social welfare spending for 1980–2000 demonstrates a divergent pattern of spending for children and elders for this time period as well. They report that while both groups saw gains in real per capita social welfare spending, the gap in per capita spending between elders and children grew by 20 percent from 1980 to 2000. Most of this divergence in spending occurred during the portion of the timeline that their trend analysis overlaps with ours (1980–1986). Between 1986 and 2000 the gap in real per capita spending continued to grow but at a much lower rate, with the result that the difference began to narrow in relative terms.¹⁵ Hence, the divergent trend in social welfare spending that was so pronounced during the 1960s, 1970s, and early 1980s finally began to moderate during the late 1980s and 1990s.

Looking Forward

Top Social Welfare Spending Trends:... Looking Forward Analysis A New Fairness Doctrine Editor's Notes NOTES

 
No major new social welfare programs have been enacted or implemented for children since 2000. Rather, states—the main source of social welfare spending for children—have faced sizable budget deficits and attempted to shore up their bottom lines by reducing spending. At the federal level, legislation to expand social welfare programs for children, including bills that would create universal health insurance for children, have been introduced but have received at best a tepid reception. As noted by Pati and colleagues, the major policy initiative that would affect spending levels for children is the Bush administration’s proposal to turn Medicaid into a block-grant program. So far, the states have not embraced this proposal.

In contrast, legislation to create a Medicare prescription drug benefit was enacted last year. This new benefit provides partial coverage for prescription drugs to elderly and disabled Medicare beneficiaries. The ten-year cost projection for federal outlays on this new benefit ranges from $395 billion to $534 billion, depending on the source of the estimate.¹⁶ Either way, spending for this new Medicare benefit dwarfs appropriations for the last congressional health care initiative directed at children: SCHIP. Congress appropriated just $40 billion over ten years when that program was enacted in 1997.¹⁷

The new Medicare prescription drug benefit by itself will tilt social welfare spending patterns again. If the administration is successful in devolving Medicaid to the states, the divergence in spending may accelerate, given that states will be granted greater leeway in reducing Medicaid spending. Most Medicaid spending for elders is for institutional care. States already pay minimal rates for nursing home and other custodial care, so there is little room for savings. Children make up half of all Medicaid beneficiaries, making them particularly vulnerable to future Medicaid cuts.

Analysis

Top Social Welfare Spending Trends:... Looking Forward Analysis A New Fairness Doctrine Editor's Notes NOTES

 
Profound shifts in social welfare spending on children and elders occurred between 1965 and 2000 as a result of more rapid growth in per capita public spending on elders than for children. Considering the overall trend—encompassing the timeline of our early study and the timeline of the study by Pati and colleagues—some important lessons emerge from our collective work.

First, a portion of the shift in social welfare spending is directly attributable to federal policy initiatives that targeted one age group or the other. The enactment of Medicare in 1965, the indexing of Social Security in the 1970s, and the addition of the drug benefit in 2003 are good examples of policy initiatives that have increased spending on the elderly. The enactment of Medicaid eligibility expansions during the 1980s and early 1990s and SCHIP in 1997 are examples of federal policy initiatives that have increased spending on children.

Second, both analyses demonstrate that social welfare spending levels are sensitive to larger economic forces. In particular, it appears that spending for children’s programs can keep up with spending for elders during periods of economic expansion (the mid-1960s and mid-1990s) and even during periods of economic malaise (the 1970s). It is during periods of economic downturn (the early 1980s and the early 1990s), which are typically associated with state fiscal crises, that spending for children’s programs experience greater cutbacks.

Differences in the locus of authority for public programs serving elders and children help explain the relative stability of social welfare spending on the elderly and the vulnerability of spending levels for children during contractions in the economy. For the most part, fiscal decisions for social welfare programs serving children (such as education and Medicaid) are determined at the state level, while spending decisions for the primary social welfare programs serving the elderly (such as Social Security and Medicare) are made at the federal level. Revenues at all levels of government are affected by macroeconomic trends: Revenues rise during periods of growth and typically fall during downturns in the economy. However, federal revenues tend to be more stable than those at the state level. Moreover, the federal government has the capacity to engage in deficit spending, something that is not permitted at the state level. A good example of this was the enactment of the Medicare drug benefit during a period when the federal deficit was ballooning, the economy was struggling, and states were cutting social welfare programs.

Third, social welfare spending for the elderly has been heavily influenced by the indexing of Social Security cash payments. Before indexing was adopted in the 1970s, Congress had to vote on increases in benefit payment levels. The indexing mechanism ensures that retirement benefits for the elderly continue to grow with inflation even if growth in federal revenues lags the rate of inflation. Because Social Security payments account for more than half of all social welfare spending for elders, this provision is an important driver of overall social welfare spending for the elderly. No similar provision exits for the largely state-based social welfare programs serving children. Spending levels for most programs serving children are still subject to annual legislative and local government appropriations.

A New Fairness Doctrine

Top Social Welfare Spending Trends:... Looking Forward Analysis A New Fairness Doctrine Editor's Notes NOTES

 
It is encouraging that the long-standing divergence in social welfare spending for children and elders has narrowed in recent years. However, the enactment of the Medicare prescription drug benefit and the possibility that the Bush administration will be successful in devolving Medicaid to the states may fuel further divergence in spending. Looking to the future, our concern is that social welfare spending for children and elders will continue to be driven more by political concerns and macroeconomic conditions than by the needs of the two populations.

The current mix of federal and state social welfare programs combines entitlement- and need-based approaches to determining eligibility and benefits. Politics has always played a key role in the development of eligibility and benefit policies for social welfare programs. Political decisions are a product of the democratic process. However, democracy does not always yield fair results, especially when important segments of the population are disenfranchised from the voting process. Is it fair, for example, that publicly provided health care services for children are limited to children in families with low and moderate incomes, while services for the elderly are available on a near-universal basis without means testing? Similarly, is it fair that income supports are provided to children solely in low-income families and then only on a temporary basis, while those for the elderly are offered as a near-universal entitlement?

Leaving the future welfare of children and elders to the caprices of politics and the vagaries of larger economic forces is morally bankrupt and fiscally irresponsible. Instead, we argue that the country needs to adopt a fairness doctrine in allocating social welfare resources. This doctrine would be based on need rather than historical entitlement. We identify three key principles for this fairness doctrine: (1) Children and elders are both largely dependent populations. Both groups will continue to depend on public and private assistance in meeting their needs. (2) Federal entitlements with guaranteed minimum benefit levels have been the principal mechanisms by which funding for older Americans has been supported. No less should be provided for children, including a federally guaranteed income floor and basic health insurance benefits for all families with children. (3) Although resources are finite, the country can choose to meet the basic needs of both populations.

In most European countries there are adequate resources to provide entitlements for all of their citizens to basic education, medical care, family allowances, and old-age pensions. However, public spending levels for these purposes and the taxes needed to support such universal entitlements are much higher than in the United States. The average ratio of taxes to gross domestic product (GDP) in the European Union stood at 40 percent in 1998, fully eleven percentage points higher than in the United States.¹⁸ Raising taxes to these levels would permit the United States to meet the needs of its vulnerable populations of all ages. However, recent history suggests that Americans are far more comfortable with tax cuts than with tax hikes. There is also evidence that the public is becoming more apprehensive about the value and costs of programs serving vulnerable populations.¹⁹

As the number of elders and their concomitant needs and demands for public resources grow in the coming years, difficult choices between increasing taxes and reducing social welfare benefits for the elderly or other vulnerable groups will be required. As an alternative to draconian cutbacks, we can choose to reframe the allocation of social welfare resources so that lessons learned from experience with the elderly can be applied to addressing the needs of other groups, particularly children. Framing the issue as competition between vulnerable groups only distracts us from the real challenges entailed in designing and building support for public entitlements that address the basic needs of children, older people, and others.

Editor's Notes

Top Social Welfare Spending Trends:... Looking Forward Analysis A New Fairness Doctrine Editor's Notes NOTES

 
Paul Newacheck (pauln{at}itsa.ucsf.edu) is a professor of pediatrics and health policy at the Institute for Health Policy Studies and the Department of Pediatrics, and codirector of the Center on Social Disparities in Health, University of California, San Francisco. Ted Benjamin is chair and professor of social welfare, School of Social Welfare, University of California, Los Angeles.

Supported by the Centers for Disease Control and Prevention (ATPM Cooperative Agreement TS-0842). The views expressed are solely those of the authors.

NOTES

Top Social Welfare Spending Trends:... Looking Forward Analysis A New Fairness Doctrine Editor's Notes NOTES

 

1. G.F. Anderson and P.S. Hussey, "Population Aging: A Comparison among Industrialized Countries," Health Affairs 19, no. 3 (2000): 191–203[Abstract]; and R. Samuelson, "Burdening Our Children," Washington Post, 2 July 2003.
2. S. Preston, "Children and the Elderly in the U.S.," Scientific American 251, no. 6 (1984): 44–49[ISI][Medline]; and D. Shactman and S.H. Altman, "The United States Confronts the Policy Dilemmas of an Aging Society," Health Affairs 19, no. 3 (2000): 252–258.[CrossRef][Medline]
3. See S. Pati et al., "Generational Differences in U.S. Public Spending, 1980–2000," Health Affairs 23, no. 5 (2004): 131–141.[Abstract/Free Full Text]
4. P. Cunningham and J. Kirby, "Children’s Health Coverage: A Quarter-Century of Change," Health Affairs 23, no. 5 (2004): 27–38.[Abstract/Free Full Text]
5. M. Minkler, " ‘Generational Equity’ and the New Victim Blaming: An Emerging Public Policy Issue," International Journal of Health Services 16, no. 4 (1986): 539–551; and D.J. Ekerdt, "Entitlements, Generational Equity, and Public-Opinion Manipulation in Kansas City," Gerontologist 38, no. 5 (1998): 525–536.[Abstract]
6. M.D. Hayward and Z. Zhang, "Demography of Aging: A Century of Global Change, 1950–2050," in The Handbooks of Aging and the Social Sciences, 5th ed., ed. R.H. Binstock and L.K. George (San Diego: Academic Press, 2001), 69–85.
7. Pati et al., "Generational Differences."
8. E.M. Crimmins, "Mixed Trends in Population Health among Older Adults," Journals of Gerontology, Series B: Psychological Sciences and Social Sciences 51, no. 5 (1996): S223–S225.
9. U.S. Department of Health and Human Services, "Table 22: Infant Mortality Rates, Fetal Mortality Rates, and Perination Mortality Rates, According to Race: United States, Selected Years 1950–2000," in Health, United States, 2003, with Chartbook on Trends in the Health of Americans (Hyattsville, Md.: DHHS, September 2003), 125.
10. P.W. Newacheck, P.P. Budetti, and P. McManus, "Trends in Childhood Disability," American Journal of Public Health 74, no. 3 (1984): 232–236[Abstract/Free Full Text]; and P.W. Newacheck and N. Halfon, "Prevalence and Impact of Disabling Chronic Conditions in Childhood," American Journal of Public Health 88, no. 4 (1998): 610–617.[Abstract/Free Full Text]
11. M. Tolchin, "Aid to Elderly Divides Young, Old, and Politicians," New York Times, 23 June 1988.
12. Preston, "Children and the Elderly in the U.S."
13. E.R. Kingson, "Generational Equity: An Unexpected Opportunity to Broaden the Politics of Aging," Gerontologist 28, no. 6 (1988): 765–772[ISI][Medline]; Binstock, "Another Form of ‘Elderly Bashing’"; F. Torres-Gil and J. Pynoos, "Long-Term Care Policy and Interest Group Struggles," Gerontologist 26, no. 5 (1986): 488–495[ISI][Medline]; and W.A. Rosenbaum and J.W. Button, "Is There a Gray Peril? Retirement Politics in Florida," Gerontologist 29, no. 3 (1989): 300–306.
14. A.E. Benjamin, P.W. Newacheck, and H. Wolfe, "Intergenerational Equity and Public Spending," Pediatrics 88, no. 1 (1991): 75–83.[Abstract/Free Full Text]
15. Susmita Pati, University of Pennsylvania, personal communication, 17 June 2004.
16. D. Holtz-Eakin, Congressional Budget Office, "Estimating the Cost of the Medicare Modernization Act" (Testimony before the House Ways and Means Committee, 24 March 2004).
17. K. Allen, "Children’s Health Insurance: SCHIP Enrollment and Expenditure Information," 25 July 2001, www.gao.gov/new.items/d01993r.pdf (16 June 2004).
18. I. Joumard, "Tax Systems in European Countries," Economics Department Working Paper no. 301 (Paris: Organization for Economic Cooperation and Development, 29 June 2001).
19. M. Silverstein et al., "Solidarity and Tension Between Age-Groups in the United States: Challenge for an Aging America in the Twenty-first Century," International Journal of Social Welfare 9, no.4 (2000): 270–284.[CrossRef]

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