Freeing up an enormous nest egg

Asked how her client — a retired fashion designer — might live differently if she didn’t worry about having to spend her money on medical care or a nursing home, Sear was quick to respond. “I think she would have a happy next month or 10 years,” she said. “She would take that incredible energy and interest in life and do what she used to do, which was create gorgeous clothes. Or she would go to the Museum of Modern Art, where she’s been a member for 60 years, and she would go watch foreign films. Now she sits with a giant book of providers making sure her ophthalmologist is in-network.”

Sear noted, too, that this client is markedly better off than most. Those with significantly fewer savings feel, rather than the deprivation of foregone enjoyment, a precarious daily life of cut corners — skipped meals, over-the-counter medications that inadequately replace prescriptions, and so on.

“Psychologically it’s a very real thing that there is no real safety net, and that the safety net we do have is so tenuous, so complicated and arcane,” Sear said. “People are really scared to spend their money. Because you never know what’s going to happen.”

Investments with big dividends

Beyond enhancing the basic quality of life of America’s seniors, expanding medical and long-term care insurance would almost certainly yield broad economic benefits. How powerful might the impact be? The first step towards knowing is to look at the amount of capital involved — the amount of money that would be potentially freed up for spending in the absence of health expense risks. Karen Kopecky and Tatyana Koreshkova, economists at the Federal Reserve Bank of Atlanta and Concordia University in Montreal, respectively, estimate that savings in the U.S. for old-age health costs (including both medical and long-term care expenses) account for a full 11 percent of the country’s private wealth. This, they say, is equivalent to “the entire stock of industrial equipment in the U.S.”

This means that a vast pool of wealth — estimated to be in the range of $4 trillion — that is currently constricted by fears of high health costs would likely be freed to circulate in the economy. To understand the potential impact, it is useful to look at local economies that rely on large populations of retirees. Communities around the country have long bent over backwards to attract affluent retirees — those whose assets are enough that they can spend them down without worrying too much about health expenses.

According to Mark Fagan, a professor of social work at Jacksonville State University in Alabama who has studied the economic impact of retirees for more than 20 years, communities that manage to attract affluent retirees in large numbers benefit enormously from their spending. “That becomes one of their main economic engines,” he said.

Retirees spend money “on real estate, on the financial industry, they go out and eat, they buy toys for their grandkids, they play golf… That spending creates the demand for those services,” Fagan said. “Every time [retirees’] money gets spent, it has an economic impact.”

Fagan cited the example of Sequim, Washington, a small town he studied around 1990 whose retiree population had grown dramatically in the preceding two decades. Fagan analyzed the change over time in the number and kinds of businesses in the town: “I saw the number of restaurants increase dramatically, real estate agencies increase dramatically” — and so forth, he said.

The impact of spending by retirees doesn’t stop with the businesses that benefit: there is a cascade effect.  The money that retirees spend gets returned in part to the local, state, and federal government in the form of taxes. 

Advocates and others interviewed by Remapping Debate said that those seeking to cut benefits were looking at the costs of social programs in isolation from their economic benefit. “Right now, about 70 percent of the economy comes from consumers spending money. And when you put money into the pockets of senior citizens,” said Warren Gunnel, a senior policy advisor for Senator Bernie Sanders of Vermont, “they’re going to put more money into the economy.”

The cost of cutting back

What would happen, though, if the amount of money spent by the government on seniors — either direct payments like Social Security or indirect ones like Medicare — were to decrease? The amount of money seniors can and do spend on non–health-related goods and services would decrease along with them. “What you’re going to have if you take those resources back from spending on restaurants, on consumer goods, automobiles, whatever — then the economy will respond to that,” Fagan said. “You’ll have some restaurants go down. You’ll have some stores go out of business.”

Fagan argued that this would be part of a larger restructuring that, he said, is not all bad: a lot of this money would be channeled towards private health care spending, which still supports job creation and economic activity in that industry. Nevertheless, if the overall dollars flowing into an area — from both government and private spending — goes down, industries catering to demands for goods and services other than critical health care needs will suffer.