Should retirement be considered a growth industry?

May 31, 2012

Senior citizens account for a greater share of the population of Florida than of any other state in the country: 18.1 percent of the residents of the Sunshine State are over the age of 65, compared with the national weighted average of 12.7 percent. There are some obvious reasons for the state’s popularity among the elderly: It has excellent winter weather and is one of nine states with no income tax.

There’s also some indication that in the past Florida has explicitly courted seniors and encouraged them to relocate there. A 2002 report by then-Governor Jeb Bush’s Destination Florida Commission said this (emphasis mine):

Thinking of retirement as an important industry allows Florida to recognize the economic and social value of current elders and the aging baby boomer population. Retirement is a stable growth industry. Jobs and businesses needed to sustain this industry run the gamut from hospitality to health care, from janitorial workers to neurosurgeons…

…Florida exceeds the national averages for number of hospital beds per resident, Medicare expenditure per beneficiary, and Medicaid home health services.

I could not find any current economic analysis on this topic, so it’s possible that the commission’s guidance went unheeded (please leave links in the comments of any recent studies). Nevertheless, thinking of retirement as a “stable growth industry” seems somewhat counterintuitive to me. Seniors generally have lower incomes and need a lot more healthcare services than most other parts of the population. Given that the federal budget, which pays for Medicare and about 56 percent of Florida’s Medicaid spending, is being targeted for cuts, there’s a risk that the state could get saddled with paying more for seniors’ healthcare.

Florida already spends a lot on its elderly. In the 2009 fiscal year, 13.4 percent of Florida’s Medicaid enrollees were over the age of 65, and 19 percent of the state’s Medicaid spending went toward seniors (page 19). The major Medicaid expense for Florida taxpayers is nursing-home care. This care, covered by Medicaid for those without private resources, covers about 66 percent of nursing-home days. Florida picks up about 44 percent of these costs, spending $2.8 billion in fiscal year 2011, about 13.8 percent of the state Medicaid budget. This number will likely grow as Florida’s population ages.

Although the problem is most acute in Florida, all of America is getting older. We will need to provide a lot of care for our seniors in the future. The Florida Health Care Association laid out some of the demographic trends related to long-term care:

  • By 2026, the population of Americans age 65 and older will double to 71.5 million.
  • Between 2007 and 2015, the number of Americans age 85 and older is expected to increase by 40 percent.
  • Among people turning 65 today, 69 percent will need some form of long-term care, whether in the community or in a residential care facility.
  • By 2020, 12 million older Americans will need long-term healthcare. (HIAA, “A Guide to Long-Term Care Insurance”, 2002)

In the last few years other states have vied with Florida to attract seniors. The South Shore News and Tribune reported in 2007:

•In Georgia Governor Sonny Perdue has been pushing the state’s legislature to exempt income from retirement plans from Georgia’s state income tax. Starting next year, the first $35,000 in retirement income will be exempt from the tax. Perdue wants the legislature to exempt all retirement income, said Bert Brantley, the governor’s press secretary. “It’s certainly meant to help attract retirees to the state,” Brantley said. “The governor sees it as a revenue-positive idea.”

•In Tennessee the state’s economic development department has a new initiative called “Retire Tennessee.” The state has chosen nine largely rural communities that have amenities and lifestyles for retirees and is helping them market themselves as retirement destinations. Among them is Chattanooga. The state also is sending representatives to retirement-related trade shows nationwide and is advertising in Southern Living magazine.

•In North Carolina one of the hottest retirement destinations is the Asheville region. Richard Lutovsky, president of the Asheville Area Chamber of Commerce, estimated his area has up to 30 planned communities under development, half of which, it is estimated, have golf courses. Retirees may buy many of the homes, he said.

It’s not clear that promoting retirement as a growth industry would withstand a rigorous cost-benefit analysis. Tax policy should collect enough resources to provide the services the state has promised. The Sunshine State and others may be on the right track. But if Congress cuts back on Medicare and Medicaid, then this strategy maybe shortsighted.


NY Post: Millions flee New York’s tax burden

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