The burden’s place on the Social Security and healthcare system in the U.S by an aging population will require Congressional action to ensure the programs’ solvency, according to witnesses before the House Ways and Means Committee Thursday.

The U.S. population is undergoing a dramatic demographic shift, witnesses told the panel, as the “baby boom” generation enters retirement age.

“These shifting demographics define the challenges families and policymakers alike must tackle,” said Walter Welsh, chairman of the group Americans for Secure Retirement, a coalition of insurance industry groups and organizations representing women, Hispanics, farmers and small businesses. The life expectancy for a 65 year-old is close to 83, and more than half of all retirees are now expected to live beyond the average life expectancy. “The likelihood of living longer compounds both the savings and financial management challenge for individuals and families: retirees not only need to save more, they also need to manage these resources effectively so they provide a sufficient income to sustain a steady standard of living for 20 to 30 or more years,” Mr. Welsh said.

Douglas Holtz-Eakin, Director of the Congressional Budget Office, noted that some action must be taken, as the economy itself will be unable to adjust to the shift. “It is very unlikely that productivity growth could by itself ‘solve’ the projected budgetary shortfalls,” he said. Gorwth in productivity, he explained, is measured by two factors, the growth in the amount of productive capital per worker and technological advances that increase the amount of goods and services that can be produced by a given level of capital and labor. These factors, he said, are combined as TFP, or total factor productivity.

“The rate of growth of TFP would have to shift upward in a very unlikely way to close just the budgetary gap in Social Security,” Mr. Holtz-Eakin said, “and that gap is only a small part of the rise in consumption demands for the economy as a whole.”

The larger problem of the retirement system, according to Social security Advisory Board chairman Hal Daub, will be the health care issue.

“Future increases in the cost of health care for the aged will put severe strains on the financing of Medicare and Medicaid, complicate the Nation’s ability to finance Social Security and other budgetary priorities, and undermine the ability of employers to provide retiree health benefits,” he said in his written testimony. “Moreover, these cost increases will also eat into the adequacy of the cash income of the aged through large escalation in premiums and other out-of-pocket costs.”

Citing a July 2004 memo from the Centers for Medicare and Medicaid Services actuary, Mr. Daub noted that an average age-65 beneficiary with average medical costs would see their premiums and out of pocket expenses rise to 91 percent of the benefit in 2078. In seeking to solve the problem, he said, lawmakers must look beyond simply funding seniors.

“If we are to have a rational and successful retirement security policy, the health care part of that policy must be viewed as much more than simply a question of financing,” he said. “We need to find ways to rationalize the health care system, constrain its costs, and improve the quality of care.”