America is Aging and That Could Present Problems for Some States

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In about 15 years, the number of people 65 and over is expected to outnumber those under 18 for the first time in U.S. history.

The nation’s population is growing older, posing financial and economic challenges for states around the U.S. in the years ahead, a credit rating agency cautioned this week. 

S&P Global Ratings notes in a brief that by 2035 the Census Bureau projects the number of people aged 65 and older will outnumber those under 18 for the first time in the nation’s history.

More births and greater in-migration of young people from foreign countries could act as counterweights to the aging population, but are not on pace to do so at current levels.

The ratings agency looks at a metric called the “old-age dependency ratio,”—the number of people in a place who are 65 or older, as a share of the working age population between 15 to 64. 

A lower number here is generally associated with more robust economic growth and stronger tax collections. Nationally in the U.S., the ratio was shy of 20%, or less than 1-in-5, from 1990, up until around 2010, according to the report. But since then it’s been rising.

In 2020, the report estimates only three states—Florida, Maine and West Virginia—will have an old-age dependency ratio above 33.3%, indicating that there is about one older-aged adult in each of those places for every three working age people. By 2040, the report says, the number of states with a ratio above that level is on track to be 37.

This demographic shift has different implications for states in different regions.

The report describes how states in the Northeast—some with relatively high living costs and lagging economic growth—could also face budget pressure tied to a rise in the number older Americans covered by Medicaid, the health care program for people who are disabled or poor. That program is also used to help pay for nursing home costs. 

Most public funding for health care for seniors flows from the federal government through Medicare. But, in recent years, the number of lower-income, older Americans on Medicaid increased and accounted for a disproportionate share of the program’s costs, the report says.

Meanwhile, in the Midwest, every state except for North Dakota is projected to have an old-age dependency ratio over 33.3% within the next two decades, with younger residents moving away from rural areas in the region, and older people staying behind. 

This part of the country, the report notes, has seen sharp declines in manufacturing employment over the past 20 years. 

Both the Midwest and the Northeast have seen significant out-migration over that time—although in the Northeast people moving to New York City have helped to offset the trend.

In the West and South, shifting age demographics appear healthier, with more young people moving to those parts of the country. In the South, states like Florida, Texas and the Carolinas are proving to be popular destinations for Americans looking to relocate.

But the ratings agency warns that the South was one of the region’s hardest hit by the last recession. Should another downturn strike and drive up unemployment, the report adds, it could present budget difficulties for states in the region with higher populations of seniors. 

Greater diversification in the region’s economy would help to better insulate it against these sorts of problems, according to S&P.

The report also points out that the allure of parts of the West for retirees looking to move or age in place could contribute to higher housing prices at a time when housing affordability is already a concern in California cities, as well as places like Denver and Seattle.

S&P predicts that state policies aimed at alleviating costs tied to having children and promoting in-migration are likely to get more attention in the coming years.

The nation’s birth rate was down in 2018, with recorded births declining to their lowest level in 32 years, according to one federal report released last year. 

At the same time, America’s foreign-born population had its smallest growth between 2017 and 2018 than in any year since the Great Recession began at the end of 2007, based on Census Bureau data that a researcher at the Brookings Institution cited last year. 

The Brookings research notes that the slow growth here is tied to a decline in the number of non-citizens, as opposed to naturalized residents. That shift occurred as President Trump has pursued a range of hard-line immigration policies during his time in office.

Bill Lucia is a Senior Reporter for Route Fifty and is based in Olympia, Washington.

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