The Relationship between Health Care Costs and Aging Populations

According to the most recent forecasts by the Organization for Economic Cooperation and Development (OECD) on the impact of population aging on public health expenditure, long-term health care will account for about half of the rise in social expenditures related to age by 2050. Yet, health-care predictions are subject to greater uncertainty than pension expenditure projections. It is vital to establish realistic and trustworthy projections of the impact of demographic change on national expenditures. This paper investigates the relationship between aging populations and health-care expenditures by focusing on the evolution of research on the subject, evidence from current studies, and implications for policy. as well as considering its implications for the future research and health care policy.

Introduction

The rising proportion and number of individuals over the age of sixty-five in many world countries is has created an increasing concern over the impact of such a trend on the public health expenditures (Felder and Werblow 81; Rodwin 31). The most recent projections by the OECD suggests that population aging will lead to the increase in age-related health expenditures, in most world countries, from an average of about the current 20 percent of the Gross Domestic Product to almost 26 percent by the year 2050 (Lopreite and Mauro 121; Thomas 250). According to the projections, the old-age health care expenditure, pension payments and long-term care each contributing to almost half of such an increase (Lopreite and Mauro 122; Thomas 252). The health care spending projections are significantly more uncertain than the pension-related expenditures (Lago-Penas, Cantarero, and Bla'zquez 56; Thomas 251). While the current pension legislations have a framework for creating future benefits, the estimation of future health care demand and supply does not have such rules (Chang, Yang, and Hsieh 951; Schulz 134). Establishing reliable projections regarding the impact of demographic change on the national health care expenditures is very important (Chang, Yang, and Hsieh 952; Schulz 136). This paper explores the relationship between aging populations and health care expenditures by focusing on the evolution of research on the subject, evidence from the recent studies, as well as considering its implications for the future research and health care policy.

The Evolution of Research on the Correlation Between Aging Populations and Health Care Expenditures

The study conducted by Abel Smith and Titmuss in 1956 was one of the earliest attempts to determine the demographic change impact on health care (Lopreite and Mauro 124; Wister and Speechley 227). According to their study, only a few changes in population will affect the current cost of health care, and everything else will remain unchanged. In the year 1976, the UK’s Expenditure Committee in the House of Commons published the per capita health expenditure estimates (Lopreite and Mauro 125; Wister and Speechley 229). The estimates involved the weighing the forecasted projected population changes for every age group against the approximated health expenditures for every individual in such groups so as to arrive at an expenditure-based approximation of the total volume of health care in the future years (Lopreite and Mauro 126; Wister and Speechley 232). The Committee made annual publications of the updated estimates throughout the 1098s and the 1090s, and the estimates showed the likelihood of future growth of the healthcare expenditure as a result of the possible demographic change (Lopreite and Mauro 126; Wister and Speechley 237).

Several countries, including the United States and Canada, conducted similar subsequent analyses. For example, one of the Canadian researchers (Marzouk), in 1991, published an estimate regarding the approximate resources necessary to take care of the aging population in Canada. In the study, the researcher attempted to allow for unequal distribution of health care spending per capita among various age groups (Chang, Yang, and Hsieh 953). However, the result of the study was that there was a likelihood of the increase in health care expenditures among the elderly (Chang, Yang, and Hsieh 956). According to his predictions, the demographic changes and shifts in the health care utilization patterns were as a result of the country’s doubling health care spending as a proportion of its GDP over about forty years (Chang, Yang, and Hsieh 959). The studies by other Canadian scholars also reached similar conclusions, which showed that the demographic trends explained a given proportion of the of the future growth of health care expenditures among the elderly. Citizens (Chang, Yang, and Hsieh 959; Felder and Werblow 81).

In the United States, the Health Care Financing Administration (HCFA)’s National Health Expenditures Projection Team made several projections during the 1990s for both the public and private health spending (Rodwin 32; Sharma and Srivastava 27). Again, they captured the impact of demographic change by relating the weighted indices, depending on the intensity and the use of health care services, to different age groups (Sharma and Srivastava 29). In the year 2001, an analysis regarding the fiscal implications of aging got published by the OECD (Rodwin 33; Thomas 255). Again, the health care part of the analyses depended on the projections which got based on each group’s per capita health care expenditures multiplied by the projected population in every group (Rodwin 35; Thomas 256). In fact, almost all the world countries that make reports on such estimates utilized such a projection method (Thomas 258).

In the recent studies, the trends in the national health expenditures in various countries such as Canada, Australia, Japan, Wales, and England tried a reflective application of the previous projection methods (Lago-Penas, Cantarero, and Bla'zquez 56). The researchers first calculated the changes in specific ages per capita health care expenditure, as well as the demographic composition over a given period (Lago-Penas, Cantarero, and Bla'zquez 57). They then estimated the degree to which the identified changes in demographic structure, population growth, and age-specific per capita health care expenditure could help in the prediction of the observed rise in health care expenditure (Lago-Penas, Cantarero, and Bla'zquez 58). According to the outcomes of such studies, the changes in demographic structure contributed to about two percent of the observed health care expenditure increase in England and Wales from the year 1987 to1999. That is compared to 7%, 15%, and 56% for Canada, Australia, and Japan respectively (Lago-Penas, Cantarero, and Bla'zquez 61). The important part of such a survey method was that it produced small magnitudes of demographic impact, and the basis for the analysis appeared opaque. The opaqueness of the analysis got confirmed by several health economic analyses in other developed countries, such as the United States, which homogeneously found demographic structure as a non-significant variable in the analysis (Lago-Penas, Cantarero, and Bla'zquez 63).

In different studies conducted in countries such as the Netherlands, the researchers found that the country experienced 170% increase in hospital costs as a result of the huge elderly population (Schulz 137). Another Canadian study aimed at assessing the impacts of age and proximity to death on the various health care costs found that proximity to death was more important than age as a predictor of health care expenditures (Felder and Werblow 83). Additionally, according to a study conducted in 1999 by Zweifel and colleagues, the remaining life time forms a significant health care expenditure predictor, and the aging of the population creates forms one of the critical factors that influence the increase or growth of health care expenditures (Chang, Yang, and Hsieh 960). In summary, all the previous studies confirmed that health care expenditures, in every country, have a high concentration towards the end of life and that the correlation between age and health care expenditure weakens when the proximity to death factor is taken into consideration.

Health Care Expenditure Projections

Following the observations made on the proximity to death as a factor in the health care expenditure distribution, several studies have made attempts to incorporate such findings into health care expenditure projections. In one approach, a Dutch researcher multiplied a constant “Cost of Death” by the likelihood (probability) of death in every group (Rodwin 37). He then expressed the recurrent health care costs in every group as the total cost minus the costs relating to death. According to such an approach, the death-related costs increased with age whereas the recurrent costs reduced proportionately, leading to a reduced projected growth in the overall health care expenditure since the “cost of death" get pushed into the future by the increase in life expectancy (Rodwin 39).

In a different approach involving an American study, the researchers considered projections from the year 1992 to 2050 and estimated the population that is likely to survive in each year and every age group (Schulz 138). Despite achieving great success, the approach had the limitation of not considering the proximity to death factor (Schulz 39). Through the use of similar methods, and taking into consideration the proximity to death factor, Miller, a US researcher, found that creating allowances for the proximity to death result in substantially reduced health care expenditure projections in the United States than the traditional approaches that ignored the proximity to death factor (Thomas 259). The first attempt to include the proximity to death factor in the UK's health care expenditure projections formed part of the country's first report of the sponsored investigation by the Treasury regarding the possible requirements for long-term health care spending (Seshmani 556).

Evidence of the Relationship Between Aging Population and Health Care Expenditure from Recent Research

The quality and quantity of research regarding the relationship between the demographic change and health care expenditure, in the recent years, has increased tremendously (Chang, Yang, and Hsieh 961). Attempts have been recently made to enhance the data and methodology used in the estimation of the quantitative significance of proximity to death to the health care expenditure. Another study, which was a replication of the Zweifel and colleagues' work, used the improved methodology and a richer data set from England's Oxfordshire hospital. The study made a conclusive demonstration that both the proximity to death and age have significant impacts on the quarterly hospital costs (Chang, Yang, and Hsieh 962; Lopreite and Mauro 121). The study found age to be significantly affecting the quarterly in most of the analyses. However, the quantitative effect of age on the costs was low compared to the proximity to death, which showed a tripling of the quarterly costs (Chang, Yang, and Hsieh 963; Lopreite and Mauro 125).

In a similar analysis, but utilizing a different data set, Yang and colleagues assessed the use of health care by 25,998 elderly individuals from the year 1992 to 1998. Again, the outcome of their analysis confirmed that the monthly health care spending for elderly persons increases significantly with age (Seshmani 558). However, the reason behind their findings was that the mortality rates increase with age, and therefore the health care expenditures rise as people approach the death age. In the same study, the researchers found that the higher inpatient expenditures were as a result of the time to death, while the high elderly population was the primary reason behind the long-term health care expenditure (Seshmani 559). Therefore, their conclusion was that there was a need to include proximity to death in the projections of health care expenditures so as to demonstrate that the projected rise in every individual’s health care expenditures, resulting from long-term health care benefits, would be lower than expected. That is because of the high concentration of health care expenditures at the end of life as opposed to during the time of a relatively healthy life.

From such studies, it can be argued that while death and time form better predictors of health care expenditures than the population's age, they, in turn, act as simple measures of health care status. That is because the reduction of health status leads to increased health care expenditures and eventually results in death. Consequently, it may be beneficial to determine the relationship between the population's health status and its health care expenditure. In a study conducted by Lubitz and colleagues, the researchers found that elderly people in better health had longer life expectancies than their counterparts in poor health. However, the study also found that the two distinct groups of elderly persons had almost the same cumulative health care expenditures (Seshmani 560). Such results, therefore, suggested that the life expectancy improvements might not necessarily increase the health care expenditures.

The overall evidence from the recent research is that population aging strongly increases the health care expenditures on the long-term care and moderately increases the health care expenditures on acute care. The research evidence further indicates that most significant health expenditure growth deliverer is medical technology, which has a strong interaction with both age and health. In other words, population aging enhances the influence of medical technology on the growth of health expenditure and vice versa. Population aging will continue to form part of the primary health policy debate. There is, therefore, a need for future research to focus on the various changes in the health sector that can best explain the impact of longevity gains on health care expenditures, as well as the interactions between aging and various societal factors that influence health care expenditure growth.

The Implications of the Previous Research Findings for the Future Research and Health Care Policies

Following the various studies conducted by researchers from different parts of the world, a clearer picture tends to emerge regarding the relationship between the aging populations and the health care expenditures. One of the lessons emerging from most studies is that the belief that there exists a mechanistic correlation between the aging population and the annual increase in the demand for health care, as well as the growth in national health spending is, to some extent, incorrect, and is just a myth. That is because, according to most studies, age does not form a good predictor of health care expenditure, and therefore the simple health care expenditure predictions that are age-specific might be misleading.

Most research works reviewed in this paper also conclusively indicate that time and death act as an effective and more accurate health care expenditure predictor than age, and that the incorporation of time and death in the projection procedures of future health care expenditures, the projected growth rates get reduced. The use of time and death in the estimation of health care expenditures also help in the determination of individuals' health status. At the population level, however, even simple health status measures like disability and functional impairment provide much clearer insight in explaining the population’s demand for health care.

Conclusion

In overall, all the previous and the most recent studies confirm that health care expenditures, in every country, has a high concentration towards the end of life and that the correlation between age and health care expenditure weakens when the proximity to death factor is put into consideration. Additionally, it is essential to note that the various changes in health status and demographic structures only form part of a much broader set of factors that influence the future health care expenditures. As evident from several research works, the future needs for long-term health care cannot be projected using the same procedures for predicting health care expenditures. Besides, there is a high likelihood of the continuation of technological advancement in the current of medical intervention measures in the context of the most precise projection methods of health care expenditures. However, demographic changes remain as having a significant impact on the health care expenditures in any country, and to a greater extent, affect the manner in which health care gets delivered to the population. The health care expenditures and long-term care, therefore, account for a huge percentage of the national income spending of any country, and the scope of research on the healthcare expenditure continues to broaden.

Works Cited

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