An Aging Society: Another View

The debate over the sustainability of public health care has often focused on an aging population as one of the key drivers with apocalyptic scenarios of a silver tsunami of seniors washing over the health care system and bankrupting the system.

  While health spending does rise with age, most academic studies have found that the determinants of spending are somewhat more complex with technological extension, inflation, and income growth being collectively more important drivers than age alone.  For example, according to a recent C.D. Howe paper titled Chronic Healthcare Spending Disease (April 2011) by Dodge and Dion, technology is estimated to account for 27 to 48 percent of the growth in real per capita health care spending in the United States from 1960 to 2007.  Their healthcare spending base case forecast for Canada the 2012 to 2031 period shows rising incomes accounting for about 31 percent of future health care spending growth, general inflation 33 percent, technology 17 percent and aging alone about 16 percent.

Aside from aging being a cost driver, it should also be viewed as a major human accomplishment.  One of the remarkable achievements of the human species over the last 150 years has been the extension of the lifespan.  For example, in the mid-19^th century life expectancy at birth in the United States as estimated by Michael Haines was 39.5 years for whites and 23 years for blacks.  By 1900, it had risen to 51.8 and 41.8 years respectively and by 1930 it had gone up to 60.9 and 48.5 years respectively.  In Canada, life expectancy at birth would have paralleled these historical American numbers and by 1931 it was 60 years for males and 62.1 for females.  Much of the improvement in life expectancy came prior to the onset of modern medicine and was the result of economic growth, improved food and nutrition and public health measures.

What is amazing is that these improvements in life expectancy have continued into the late 20^th and early 21^st century albeit at a slower rate.  The accompanying figure plots life expectancy at birth data for the total population obtained from the OECD Health Statistics for the OECD countries since 1960 and they show that life expectancy has continued to rise.  By the early 1960s. the average life expectancy at birth for the OECD countries was 68.2 years (71.3 years in Canada) and by 2007 averaged 78.9 years (80.7 years in Canada).  Over the course of 150 years, life expectancies at birth in the developed world have essentially doubled and since the early 1960s, they have grown 16 percent.  Yes, an aging population is a cost driver and brings with it economic challenges but it is also an accomplishment.  Moreover, since 1960, some of the biggest increases have been in what were less developed OECD countries (Mexico, Turkey and Korea) suggesting a remarkable convergence in life expectancy as well as economic development.  One of the challenges for the 21^st century will be to ensure that the quality of those additional years matches the quantity.

 

 

 

 

 

Comments

[Andrew F]

Thanks, that's a really good point. I'm not convinced that health care spending is going to be a crushing burden, particularly since its share of GDP is not especially high compared to the OECD. It would be nice, however, if we had prefunded some of the liability (ie, saved) or simply set a tax and spending regime that will have consistent rates over longer time frames, and not low rates while the boomers are in their prime earning years that will subsequently have to rise as they retire.

[Lord]

The good news would then be that it will be relatively easy to control costs by paying only for new technology that is cost effective, or even more by paying only by benefit.

[Determinant]

I had five great-grandparents alive when I was born. Two died by the time I was a toddler, but three lived on until I was a teen. They were all in their nineties when they died. Among my generation (Echo) I'm not exceptional. All four grandparents was the norm and usually a smattering of great-grandparents too (though I had a lot even by my generations' standards).

The upside is that many of the youth today have had a lot of grandparent time and thus the "generation gap" isn't so wide. It's fun playing Euchre with four generations of the same family at the same time.

[Shangwen]

Good post. I would note that the CD Howe's findings are similar to an analysis carried out by the CBO in 2007, where they noted that while an aging population would drive up health care costs in the US, aging alone accounted for only a small portion of it. The rest of it was the dreaded "excess cost growth".

The point on economic growth as a primary driver of longer life is an important, because it supports the facts that (1) health care makes only a small contribution to lifetime health status, and (2) with health extending later into life, longer working lives are also possible, thus increasing lifetime productivity. I would also note the substantial rise in the average of admission to long-term care facilities for the elderly, which was once in the late 60s and is now approaching 80. People are certainly in poor health long before LTC placement, but we are delaying their entry to the most expensive type of car much longer.

Lots of good information in this Deloitte report released this week on US health care costs by the way, including some on "supervisory care" or long-term care.

In every area of area of health care, a major cause of economic waste is uncertainty, disagreement, or lack of systematic evidence about acceptable standards of care. If we tighten these up for geriatrics sooner, we will also reduce costs in needless tinkering in the near future.

[Shangwen]

Correction, in the last post I mean to say "substantial rise in the average AGE of admission".

[Neil]

Life expectancy at birth isn't a great stat for comparing years, since it gives the mistaken impression that a lot of people were dying in 30s (or younger) historically. In fact, the numbers are dramatically skewed by high infant mortality rates, so lots of people died in the first few years of life, and plenty of people still lived to a ripe old age. LEAB tells not so much the story of extending life - though that's happened, too - but is mostly a story about avoiding death in young children.

Life expectancy at age 5 would give a more useful picture of how long people actually expected to live now and then.

[jesse]

The continued improvement makes sense: the demographic of the population who ultimately determine natural life expectancy were born many decades ago. Any improvement we are seeing is due to the sum of changes to economic growth, health, nutrition, etc. over the past 8 decades. We should expect that people born in, say, the '60s to be even healthier, especially given the drop in smoking rates and a general strategic improvement in exercise and dieting education (e.g. Canada Food Guide and Participaction).

[jesse]

If we peel the onion on US health care expenditures, it is concerning how much go towards treating chronic lifestyle-related illnesses such as type-2 diabetes. Those will be the painful consequence of not focusing on healthy lifestyles of its citizenry. I don't think Canada can stand too much prouder on this. Smoking isn't as bad as overeating, ironically, because many of the diseases associated with smoking are fatal and of short-duration. Doesn't help with the life expectancy peeing contest though.

[Jacques René Giguère]

Neil:
Life expectancy at 40, 50 and 60 is even better and tells us things. In my youth ( we were soldiers once ,and young), magazines were full of life insurance company ads targeted at the 30's and 40's showing destitute young widows loking with envy at theit wise neighbors. Life insurers are mostly now in the disability and drug insurance. There is no markets in the fear of dying in middle age,

Andrew F:
In a non-coconuts monetary economy,you can save individually by accumulating claims on future production but you cannot save on the aggregate for a future spending. You can only refrain from current consumption, invest to grow your future GDP, hope the smaller consumption doesn't depress AD and prevent investment and then use the extra productive power for your projected new uses. In the mid-term , you can train more doctors but not now if you need them in 40 years.
An old point that I tell my students ten times a week. Oldie but goldie and often forgotten.

[Blikktheterrible]

I'm curious about the role of "general inflation" in this. Does price inflation cause real expenditure on healthcare to rise or is this a different kind of inflation?

[Roger]

I think we should be more concerned about obesity as a driver of huge public health costs. Isn't the generation of children coming now the first generation to probably have a lower life expectancy than their parents? Food for thought.

[Shangwen]

Roger, I think the evidence would suggest we say the same thing about obesity, in that its rise is, like longer life, in part the product of a huge increase in wealth and living standards. Like long life, it creates potentially costly health problems, but the economic burden of obesity is uneven. Those who are less educated and have lower incomes are more prone to obesity; those are also factors independently associated with poorer health and lower value obtained from health care utilization. On the other hand, everyone gets old, and age isn't reversible, so I think aging carries the day as the main health economics worry.

Your point about the current or next generation is a good one. I haven't heard about lower life expectancy, but certainly about less wealth and security.

[Roger]

http://www.nih.gov/news/pr/mar2005/nia-16.htm

It'll be ironic and incredibly sad if for the next generation, their problem of a "tide of elders" is "solved" by an epidemic of obesity.

[mild endorse Libs]

Human development might turn into medical products/advances in the 3rd world. They could use a Trust fund since 3rd world venture cap and institutions severely underfund all domestic R+D.
There is an optimum consumption and income ratio for a given society/tech/human-capital level, that maximizes utilitarianism. This ratio changes over time. Some consumption adds future individual consumption, some adds future income. Medical surveys can be costed and used as a precursor for 3rd worlc health funding. That's why I don't like cutting Census questions without reason. I wanna know sodium vs fat tradeoffs, and sugar. Health info comes from mandatory census.

[mild endorse Libs]

....so you can set up an assumed weighting of 2010 people vs 2100, and set weights on both extreme ends to guide how to set tax rates.

[Jacques René Giguère]

The increase in cost is
1) a Baumol cost of services problem. A lot of expenditures is on care and relative productivity is not increasing in the hand-holding sector.

2) An income effect of increased productivity in the cure. All diseases treatment go through 3 stages 2.1) cheap as there is nothing to do. In the 50's , a cancer diagnosis was cheap : make your will. 2.2) expensive as we go through brute force ( surgery) 2.33) In the end, internists triumph and we use a cheap drug.
Currently increased efficiency doen't lead to reduced use but to increased use ( an income effect if you will).

3). As some goods became basic and income elascticity goes to zero, increased productivity leads us to cinsume more of the new goods as a share of GDP. Cars in the 20'-50's, electronic, computers etc.
Imagine if someone had said in the 20's: the share of the car expenditure in GDP is increasing.This is a major problem and we must stop that. Or : we must stop the increased share of computer in the 80's economy...

The main problem with health-care is not the relative cost or the share of GDP but that there people who don't want the bottom 90% to live as well as the top 10%. ( Nick, that's my innner Ken Kesey in me speaking....)

[mild endorse Libs]

...it is funny the (corporate?) tax cuts the CPC commercial (dumb) woman mentions. Praising helping Barrick buy a metals company, which merely kills some middle management and maybe shares some technology. And Cdn major banks buying a USA bank and a Chinese bank last year, also increases bank dividends. She also asks who other than PM will fund senior's retirement while praising the 26000 weed dealers and users costing two nursing jobs each.
....in addition to longevity or health years tallies, quality-of-living encompasses the ability to learn of and to self-select different activities. An advantage for open societies. IDK if diversity or intensity of experiences is more important. The Economist's job-related quality-of-living measure has some value in that in the absence of some future GAI post-modern or resource rich country, employment is a safety net. But mostly the USA and now CPC are missing the consumption aspect, since the richest 2% or 0.2%, can't have the relationships and experiences and orgasms of the 99.8%, let alone get their degrees.
I mildly endorsed Hillary because of healthcare costs. If USA goes bankrupt or 1990s Russia longevity losses we should have a plan in place such as ramping up immigration, or a resource tax with revenue devoted to mitigating less USA exports. Y'know when AGW runs away, the survivors will blame AB in part. While CTV lamely comments Albertans gain nothing from paying federal corporate taxes; it gives them Canadian cover for being so innefficiently GOP (when you send me to prison, beat me, steal from me, should get adult gloves after 141 yrs to be a GOPer). People don't hate AB despite AB being the GOPs 2nd best friend.

Natural resources can form the base with which to estimate optimal Crowns development and expenditures. The easier to get at (mining and farming tech make ROI lower), the purer the equation with federal revenue, loans or foreign aid. Should be able to equate the entire economy this way. If one Earth now equals one Earth in 2100, optimal tax and Crown policies can be guessed. If the equation is in different directions, it will demonstrate which tax shifts will lead to which future world.

[mild endorse Libs]

...it's a pretty shitty country without freedom of association or to buy chemicals. I wish Conrad would've endorsed North Europe instead of devoting life to building prisons and droughting flooding future society.
Money has no little to me when dumb and hopefully going to Hell CPCers run this country.

[Shangwen]

Looks like this thread has died. I appreciate many of the comments here, but I realize this blog is overall pretty macro-oriented. Hopefully we can continue a discussion on health econ elsewhere.