The Impact of Aging on Future Healthcare Expenditure

The impact of aging on healthcare expenditure (HCE) has been at the center of a prolonged debate. This paper purports to shed light on several issues of this debate by presenting new evidence on the ’red herring’ hypothesis advanced by Zweifel, Felder and Meier (1999). This hypothesis amounts to distinguishing a mortality from a morbidity component in healthcare expenditure (HCE) and claiming that failure to make this distinction results in excessive estimates of future growth of HCE. A re-estimation based on a much larger data set is performed, using the refined econometric methodology. The main contribution is consistency, however. Rather than treating the mortality component as a residual in forecasting, its dynamics are analyzed in the same detail as that of the morbidity component when predicting the impact of population aging on the future growth of HCE. For the case of Switzerland, it finds this impact to be relatively small regardless of whether or not the mortality component is accounted for, thus qualifying the ’red herring’ hypothesis. ∗This paper is part of the Avenir Suisse project ”Aging and Healthcare Costs”. The authors gratefully acknowledge perceptive criticism by participants of the 2005 meeting of health economists in D-Mainz, in particular Walter Krämer (D-Dortmund). We thank Rainer Winkelmann and Lorenz Götte (University of Zurich) and three anonymous referees for helpful comments and SWICA Gesundheitsorganisation for providing the data. †[email protected], Avenir Suisse, CH-8005 Zurich ‡[email protected], Plaut Economics, CH-4600 Olten §[email protected], Socioeconomic Institute, University of Zurich, CH-8032 Zurich