Dealing with the Baby Boom: You Only Die Once

It has been a week of immersion in health economics for me.  Last Friday, we had Herb Emery from Calgary visiting Lakehead and he gave a seminar presentation on generational balance and public health care spending in Canada.  I also just got back from a workshop on health expenditure forecasting and along with last Friday’s speaker’s presentation it has certainly provided me with much food for thought. There were a number of issues that came up at the health expenditure workshop I attended but the most intriguing ones dealt with the effect of an aging population on health spending. 

The current conventional wisdom is that aging per se is not as significant a cost-driver – accounting for about 1 percentage point of the increase in health spending, which the CIHI report Health Care Cost Drivers: The Facts estimates at about 7.4 percent annually over the period 1998 to 2008.  Of course, one percent a year compounded annually can still be a large number especially given the demographic bulge known as the baby boom.

If aging per se has not yet become a significant cost driver one has to wonder what might happen as the baby boom ages and enters its 80s given that a lot of health spending is in the last few years of life.  The baby boom has always had an impact as it has moved through the life cycle.  When it was young, it led to a building boom in schools and then universities which has left us with a lot of schools that now face declining enrollment.  Will we be able to provide it with health care that does not saddle us with expensive new infrastructure and services?  Will that infrastructure then be underutilized given the baby bust generation that follows? Are we doomed to repeat the mistakes of education with our health care?

Herb Emery’s talk focused on the financing of public health care as a pay-as-you-go system.  While an aging population may be seen as a manageable cost-driver, Herb argued this perspective misses the fact that future health spending in an aging population is a lot like a pension and there is a large unfunded liability, which will be difficult to finance through pay-as-you go given the size of the baby-boom demographic bulge and the baby bust that follows.  Possible solutions include increased fertility, lowering costs for elder health care or pre-funding the future liabilities with more taxes now.  As can be imagined, none of these solutions is particularly easy or simple.

In many respects, the fiscal crisis of the 1990s was a lost opportunity given that despite the talk of health restructuring and moving to more community based care, and home care, the results have been underwhelming.  Indeed, once budgets were balanced, the funding escalator resumed and in many respects it has been business as usual in the health care system not only with continually rising expenditures but also without any basic transformation of how we spend the money. 

I suppose one has to wonder how we will deal with things like end-of-life costs.  After all, for individuals, dying is not a repeated game and the instinct is to do and spend whatever it takes to postpone it.  You only die once.  For a society, death is a repeated game and there is greater incentive to deal with its resource costs but ultimately a society is still composed of individuals who will do whatever it takes to postpone death. Moreover, the baby boom is not really an isolated demographic but an alliance of overlapping generations including its parents and its children who all together will influence health spending for the next half century.  The baby boom currently is dealing with health care for its elderly parents and what it obtains it will also expect for itself and its children.  The effects of the baby boom go well beyond its own lifespan.

 

 

Comments

[Determinant]

I'm a bit fed up with the Baby Boom as it's expectations are not matched by generosity. It is the generation in the management seat now and its record as a job creator are appallingly poor.

Ever play the game of "Knock, knock, I want a job?"

I've had a poor week.

[Shangwen]

It is an interesting point that the upcoming and exceptional demand for elder care may leave future generations stuck with unwieldy capital stock--underfilled nursing homes primarily. Of course, since this wave is still coming, this is couched in terms of planning for the future, but what else can we do? Politics and public spending are about coalitions, selectorates, and interest groups, not political parties. And rhetoric changes as it gets closer to personal reality: a return to "dying at home" was once a romantic ideal for many people advocating health care reform, but as they and their parents start facing the final years, a twilight farewell on your comfy home bed starts looking like something best left to a Victorian novel.

The first time I saw a reference to the issue of age per se not being a driver was in a 2007 CBO report on future medicare projections, and I have heard this said elsewhere. Are you now hearing that this is a meme? I'd be interested in the source. I know nothing about PAYGO proposals, but I thank God that there still seems to be some tolerance for the elderly having to chip in for their nursing home costs. Short of getting them all to do Mechanical Turk work until their last moments, I can't see how full public funding for long-term care is anything other than a recipe for economic meltdown. Whether you fear death is up to you; what we should all fear now is the deaths of those who will go before us.

[Determinant]

If only there were something called Long-Term Care Insurance... except that there is. Payable in nice easy instalments.

[Livio Di Matteo]

Shangwen:
Alot of the discussion on the impact of aging on health spending has shifted from aging as a general cost driver to the impact of spending on the last few years of life. Proximity to death is seen as a crucial variable. You might want to look at: (1) Seshamani M, Gray AM. A longitudinal study of the effects of age and time to death on hospital costs. Journal of Health Economics 2004;23:217–35.(2) Palangkaraya, A., Yong, J.: Population Ageing and its implications on aggregate health care demand: empirical evidence from 22 OECD countries. Int. J. Health Care Finance Econ. 9(4), 391– 402 (2009)

[Phil Koop]

"pre-funding the future liabilities"

What form, exactly, is this "pre-funding" supposed to take? I personally can pre-fund my old age - so long as not too many other people are doing the same - but how is Canadian society suppose to accomplish this?

The real resource issue is that, absent an unprecedented productivity increase, more workers will have to switch to providing healthcare services from other sectors of the economy. This "pre-funding" therefore cannot take the form of claims on the rest of the economy unless it experiences miraculous productivity growth. What then should we invest in? Other developed countries face a similar demographic problem. Developing countries? The biggest of them all, China, is even worse off than we are. I think that the most plausible contribution from the developing world would be in the form of the health care workers we will need.

But overall, I am skeptical. The most likely outcome seems to be that we will deliver less healthcare than we now expect. After all, if something can't continue, it will stop, right?

[Patrick]

It's probably true that we'll deliver less health care than we now expect, but it doesn't necessarily follow this is a bad thing.

"Proximity to death is seen as a crucial variable"

Based on experience with animals (I think most of us have much more contact with pet death than people death), no amount of heroics will keep the grim reaper from his harvest. In the end, all you do increase suffering and pain. With humans, I'm wondering if the end-of-life costs are mostly incurred in heroic attempts to extend life? If so, how effective are those heroics when we factor in quality of life? Alternatively, are the costs going to simply maintaining (hopefully) humane living arrangements for the old and infirm?

[Shangwen]

Thanks Livio, will look those up. There is also Becker et al, "The Value of Life Near its End and Terminal Care", NBER Working Paper No. 13333, http://www.nber.org/papers/w13333.pdf

I think there Becker estimates the last year of life at 25% of lifetime HC consumption. The meme is 50%.

It is easy to cast such changes in terms of intergenerational warfare, but the fact is that at any given moment in the past 40 years, there have been demographic or epidemiologic bulges that required more attention than others. The only time it leads to outright social conflict is when interest groups start weighing in with conspiracy theories, such as the somewhat hysterical rhetoric in the late 90s/early oughts that breast cancer was underfunded because of all the attention and money going into AIDS. This is why you need an effective technocracy, but more importantly why you need innovation that can lower costs.

@Phil. I agree. There is a lot talk in policy circles about "health human resources" etc., but the reality is that we are probably somewhere near an historic peak ratio of HC providers per patient-hours, and in the future we will need to get used to health care with fewer people to provide it. I hear people cheerfully saying that things like Siri, the medical home, remote monitoring devices, etc will make it all OK, but that is crazy. Long-term care is inpatient care, and that is busy, hands-on work needing lots of people. Healthy 60 year-olds can content themselves with a fancy home device that feeds their BP and vitals to a central network, but what granny and grampa need to start getting comfortable with is the idea of having their rears wiped by a Japanese robot.

[Shangwen]

@Patrick, I am not sure that it is so often the case that the final year of life (particular for those over 70) is marked by futile efforts to sustain those who are obviously about to die. I think a small number of cases gain great salience in the media, but in most cases the trajectory is relatively apparent. I suspect the greatest contributor to end-stage costs is just being in a hospital bed, less so the needless series of grotesque surgical and experimental interventions that most of us dread would befall the dying. The problem is that dying for many is like falling down a bad set of stairs in the dark: the path is uncertain, irregular, and you never really know how close the bottom is. And many interventions are not really meant to be life-saving, but instead have to do with the rising cost of pain-killing drugs, more expensive equipment needed to manage those who are bedridden, etc. If you took end-stage HC costs for those over 70 and backed out those that were incurred with the specific intent of saving the life, I suspect they would be small.

[Patrick]

I sorta figured that might be the case. Personal experience suggests it: number of years ago a family member lies dying of cancer, in great pain, everyone knows they are dying, and they'd rather just get it over with, but dying can take a long time. Life is tenacious. So the drug costs, nursing cost, etc etc etc pile up. Nothing heroic. Just the (literally) agonizing process of life draining away. It's a grim business and I don't see any humane way around it.