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Future Demand for Public Services, Driven by an Aging Population, Will Cost the U.S. Government an Additional $940 Billion by 2025, According to New Accenture Report

Monday, October 22, 2012

Future Demand for Public Services, Driven by an Aging Population, Will Cost the U.S. Government an Additional $940 Billion by 2025, According to New Accenture Report07:00 EDT Monday, October 22, 2012 ARLINGTON, Va. (Business Wire) -- Costs primarily associated with an aging population are estimated to require the U.S. government – at the federal, state and local levels – to spend an additional $940 billion (4.4 percent of GDP) to fund public services1 by 2025, according to a new report by Accenture (NYSE:ACN), Delivering Public Service for the Future: Navigating the Shifts. Accenture asked Oxford Economics to project total government spending on public services2 through 2025 in 10 countries – Australia, Brazil, Canada, France, Germany, India, Italy, Singapore, the United Kingdom and the United States. The U.S. cost for delivering public services is projected to total $7.3 trillion, or 34 percent of GDP, by 2025, compared to $4.5 billion or 31 percent of GDP in 2010. Oxford analyzed the impacts of projected economic and demographic changes on the costs of delivering all public services, including federal, state and local spending (except debt-interest payments and unemployment-related benefits). Aging Population The primary driver of the projected expenditure increase is an aging U.S. population. In 2011, 13.1 percent of the population was 65 years or older. That is projected to increase to 18.2 percent by 2025, which will account for almost one in five of the U.S. population3. Currently, 93 percent of those over 65 are on Medicare,4 which alone is estimated to cost more than $500 billion in federal spending in fiscal year 20135. Other factors in the analysis included wealth effects6 – assumptions based on historical evidence that suggests as countries get richer, governments spend proportionally more per person on public health services. Expenditure Gap Demand-driven spending estimates were compared against the current trajectory of public-sector spending to identify the ‘expenditure gap' in each country by 2025, along with its percent of GDP. Closing the Expenditure Gap The research also establishes estimates of labor productivity in the public- and private-services sectors in eight of the countries (where the information was publicly available) to help inform estimates of the efficiency savings that are required in the U.S. public sector to help close the expenditure gap. U.S. public-sector labor productivity – a measure of value added to an economy per given labor input – has increased 0.3 percent per year, on average, since 2001, well below productivity growth seen among the private-services sector at 1.5 percent. Improving efficiency is a key factor that supports both labor productivity and total productivity across economies. Increasing efficiency and productivity will enable public-sector services to deliver desired outcomes at lower costs. With the looming expenditure gap, the demand to improve efficiency in the public sector has never been greater. The United States could save as much as $995 billion in annual expenditures by 2025 by increasing public-sector efficiency by just 1 percent a year–more than enough to close the gap. “Nearly one trillion dollars in projected additional costs for U.S. public services by 2025 presents government leaders – at the federal, state and local levels – with a difficult new reality,” said Stephen J. Rohleder, group chief executive, who leads Accenture's global Health & Public Service business. “We believe increasing efficiency in the public-sector must be part of the solution; it gives government leaders an option beyond just the traditional choices of cutting services or raising revenue and, our own research shows, citizens' top priority is for government to provide services in a more cost-effective way.” Citizen Dissatisfaction Accenture also surveyed citizens on their satisfaction with public services. A poll of 5,000 people, conducted across the same 10 countries by Ipsos MORI, showed that 41 percent of U.S. respondents said they are dissatisfied with the services they receive from government, compared to a global average of 35 percent. U.S. citizens were asked what they considered most important for government to focus on to improve public services in the future and the majority of respondents (51 percent) cited, as a top priority, “provide services in a more cost effective way.” Interestingly, U.S. citizens were far more likely than the global average (34 percent) to choose this answer as a priority, indicating that the high costs of public-service delivery occupies a top place in the mind of the American public. U.S. seniors, ages 50-64, reported the highest levels of dissatisfaction, with less than a third (29 percent) being satisfied. Those under 35 were the most satisfied with government services (39 percent) followed by those aged 35-49 (30 percent satisfied). Confidence that the U.S. government will be able to deliver public services that meet people's needs and expectations over the next five years decreases with age. Forty-four percent of those under 35 are confident that government can deliver compared to only 29 percent of citizens aged 35 to 49 and just 27 percent among those aged 50 to 64 who were surveyed. Navigating the ShiftsDelivering Public Service for the Future is part of an on-going series of research studies Accenture is developing to analyze key issues and trends that affect global governments. The Accenture report provides examples and practical advice for governments to enhance public-sector efficiency by embracing four major structural shifts from: Standardized services to personalized services – tailoring public services to the specific needs of each citizen to drive better outcomes at sustainable costs; Reactive to insight driven – using information and technology to identify and solve problems; Public management to public entrepreneurship – leveraging the scale and assets of government for maximum impact in the economy; and Piecemeal efficiency to whole-of-government mission productivity – taking actions across all government departments/agencies to eliminate duplication and rethink how public services are designed and delivered to improve efficiency. Learn more about Accenture's work with governments Delivering Public Service for the Future.Methodology The Oxford Economics modeling framework considered the long-term impacts of economic and demographic changes on the future demand for public services in 10 countries: Australia, Brazil, Canada, France, Germany, India, Italy, Singapore, the United Kingdom and the United States. A demand- driven projection of public-service delivery expenditure is produced using demographic projections from the United Nations, anticipated price inflation for healthcare goods and services, combined with the impact that the rising wealth of a nation has on government expenditure. Public-service delivery expenditure is total public-sector expenditure conducted at the national and sub-national level -- after the deduction of debt interest payments and unemployment-related payments. It is the amount of funding available to deliver public- sector services defined by the Classification of the functions of government, (COFOG), which was developed (in its current version) in 1999 by the Organization for Economic Co-operation and Development and published by the United Nations Statistical Division as a standard classifying the purposes of government activities. The expenditure gap is calculated by comparing the demand-driven projection with the current trajectory for public-service delivery expenditure. The current trajectory is based on existing public-sector delivery models operating within existing and planned austerity measures, and a more sustainable growth path for government expenditure given projected country-level demographic, GDP, jobs and revenue growth. The trajectory assumes that government economic policy moves toward delivering a more sustainable budget deficit over the longer-term by reducing the deficit to a level that stabilizes debt compared to GDP by 2025. The estimate of the annual efficiency savings required to close the expenditure gap by 2025 is defined as the difference between the growth rates of the demand-driven projection and of the current trajectory for public service delivery expenditure in the period 2010 to 2025. The research also compared labor-productivity growth for the public- and private-services sectors in eight of the countries (where the information was publicly available). Labor productivity is defined as the value added contribution to an economy per given labor input (i.e. employment). Ipsos MORI, a global market research company, conducted a survey of 5,000 people in 10 countries in February 2012 as part of its omnibus survey Global @dvisor. About Accenture Accenture is a global management consulting, technology services and outsourcing company, with 257,000 people serving clients in more than 120 countries. Combining unparalleled experience, comprehensive capabilities across all industries and business functions, and extensive research on the world's most successful companies, Accenture collaborates with clients to help them become high-performance businesses and governments. The company generated net revenues of US$27.9 billion for the fiscal year ended Aug. 31, 2012. Its home page is www.accenture.com. Photos/Multimedia Gallery Available: http://www.businesswire.com/cgi-bin/mmg.cgi?eid=50448067&lang=en 1 http://epp.eurostat.ec.europa.eu/statistics_explained/index.php/Glossary:Classification_of_the_functions_of_government_(COFOG) 2 Public services expenditure is defined here as total government spending at the federal, state and local levels, less debt-interest payments and unemployment-related benefits 3 According to United Nations estimates, Department of Economic and Social Affairs, Population Division (2011). World Population Prospects: The 2010 Revision, CD-ROM Edition. 4 http://www.aoa.gov/aoaroot/aging_statistics/Profile/2011/15.aspx 5 http://www.usfederalbudget.us/federal_budget_detail_fy13bs12012n_1012#usgs302 6 The wealth effect is modeled by estimating the GDP increase per head and resulting effect on public sector health spending. Accenture Health & Public ServiceJoanne Giordano, + 703-919-1288 (mobile)joanne.b.giordano@accenture.com