Population Ageing and Health Care Expenditure

The OECD’s most recent projections of the impact of population ageing on public expenditures suggest that health and long term care will account for about half of the increase in age-related social expenditures between 2000 and 2050. Projections of health care spending are subject, however, to more uncertainties than projections of pension expenditure. Making reliable forecasts of the impact of demographic change on national health expenditures is clearly important. This paper reviews the evolution of research in this area, examines evidence from recent work, and considers the implications of this work for health care policy and future research. Background The increasing number and proportion of people over the age of 65 in many countries of the world is paralleled by mounting concern over the impact of this trend on public expenditures. The OECD’s most recent projections suggest that, in thirteen countries with available information, population aging will create a rise in age-related social expenditures from an average of under 19% of Gross Domestic product in 2000 to almost 26% of GDP by 2050, with old-age pension payments and expenditure on health care and long term care each responsible for approximately half of this increase (Dang, Antolin, & Oxley, 2001). And as that study noted, projections of health care spending are considerably more uncertain than for pension expenditure: whereas current pension legislation provides at least a framework for estimating future benefits, there are no such rules for estimating future demand for and supply of health care. In addition, it is not clear exactly which demographic features have the strongest effect on health care spending: candidates include the number of people over a certain age, the number with given levels of disability or ill-health, and the number in the final years of their lives. Partly in consequence of this uncertainty, methods of projecting the impact of demographic change onto health care spending vary substantially. Most projections have traditionally calculated the actual health care expenditure per capita in different age (or age and sex) groups, and then multiplied through by the projected number of people in each age group. However, a number of recent contributions have questioned this approach, suggesting that health care expenditure is driven more by the proximity of an individual to death than by their age per se. Making reliable forecasts of the impact of demographic change on national health expenditures is clearly vitally important. So here I review the evolution of research in this area, then examine evidence from recent work, and conclude by considering the implications of this research for health care policy and for future research. Ageing populations and health expenditure: the evolution of research One of the earliest serious attempts to calculate the impact of demographic change on health care was made by AbelSmith and Titmuss in 1956 as part (Appendix I) of their study of NHS costs undertaken on behalf of the Guillebaud