Incorporating Longevity Effects into Long-Term Medicare Projections: Technical Paper 2004-02

Working Paper
January 2, 2004

John Sabelhaus, Michael Simpson, and Julie Topoleski

The cost of the Medicare program will increase dramatically as the baby boom generation reaches retirement. Results from the Congressional Budget Office Long-Term Model (CBOLT) indicate that Medicare costs will equal more than 9 percent of GDP by 2078. This paper considers the impact of replacing the Centers for Medicare and Medicaid Services approach of using an age- and sex-based model with one that is also based on age and sex but adds time until death to the forecasting model. Other researchers have found that using only age and sex can significantly overstate future Medicare costs. Incorporating a model that uses age, sex, and time until death into CBOLT does not alter the conclusion that the cost of the Medicare program is going to increase significantly, but by holding projected excess cost growth constant, it does lower predicted costs by more than 5 percent by 2078.