With the advent of the baby boom's retirement, the number of beneficiaries will increase more rapidly than the labor force, resulting in a decline in this ratio to 2.3 in 2030 and 2.0 in 2050 under the intermediate projections. Other things being equal, there would be a corresponding increase in HI costs as a percentage of taxable payroll. There are other demographic effects beyond those attributable to the varying number of births in past years. In particular, life expectancy has improved substantially in the U.S. over time and is projected to continue doing so. Medicare costs are also sensitive to the age distribution of beneficiaries.
Older persons incur substantially larger costs for medical care, on average, than younger persons.
Thus, as the beneficiary population ages over time they will move into higher-utilization age groups, thereby adding to the financial pressures on the Medicare program. The key factors underlying past and projected increases in HI expenditures are summarized in chart 6. Through the early 1980s, general inflation was a major contributor to growth in HI costs. Under the intermediate projections, the impact of the baby boom's retirement clearly shows up in its effect on beneficiary growth rates. The Trustees project a fairly constant rate of inflation at about 3.3 percent annually.