Age Effects on Health Expenditure

Introduction

The ability of a country to provide for health care needs of its population requires well set strategies and optimized priority on healthcare delivery. It is also imperative to note that expenditure on health care is influenced by myriad of factors such as prevailing political environment and financial abilities of individual patients. However, one of the outstanding factors that determine healthcare spending is age profile across a given population. Empirical research studies have indicated that age effects on health expenditure are closely related to variables such as mortality and morbidity rates, fertility rates as well as infant mortality. These variables are all confined to age profile. Industrialized nations such as Canada, France, Finland, Japan, UK and Sweden have over the years made critical improvements in public health. It is crucial to mention that health status of a country among different age groups largely depends on certain important aspects such as availability of funds for health care, demand by citizens for health care and adequate supply of health care facilities. The health and wellness of a population in any given country requires a health care system that is of a lower cost, high quality, and one that is efficient and effective. Therefore, this calls for an expenditure which can either be employer-sponsored or provided by the government to meet the costs of medication, surgeries and doctor visits that have been on the rise and only a few people can afford. This essay will examine the relation between age and health expenditures on selected countries such as Canada, Finland, France, Japan, Korea, UK, USA, Sweden, Netherlands and Norway.

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Overview

The expenditure incurred on health care is often viewed as a function of population size, the composition of different age brackets as well as utilization rates when both age and sex are integrated. This appears to be a naive approach that does not completely embody other factors worth considering. Further, this perspective indicates that higher expenditure on heath care will be triggered by an increase in population alongside the movement of people from one age group to another. It is generally perceived that people in the lower age group have a lower spending on health care compared to those in older age groups.1 Nonetheless, this view has been challenged a great deal. There are those who argue that the main demographic driver of health related expenditures is more likely to be time of death but not age.

However, whether age is a major determinant of health care costs requires use of myriad of methodologies ranging from data collection, computation to thorough analysis. Past data gathered from various countries exhibit varying results. It is also vital to utilize information on age and healthcare expenditure for a longer period of time. Hence, longevity on healthcare expenditure can reduce the marginal error when the two components are being correlated. For instance, the impact on longevity on health care expenditure may significantly differ when compared for a short and long term. Acute care and long term care will each yield different results. Furthermore, it is pertinent to bear in mind that aging per se cannot be used to determine health expenditure since other demographic factors also play crucial role.

Literature review

USA and Canada

In United States of America, expenditure on health care in the recent past has continued to grow at a fairly substantial rate. Research studies have pointed out that 16% of all US expenses on health care is on medication. Looking at the trend in its health expenditure per capita in the years 1999 to 2009, there has been a growth from 4450.044994 to 7410.163014 with a GDP of 45,989.18. Life expectancy in this nation is 78.30 years. According to statistical reports of 2011, the females have high life expectancy than the males. This is represented in figures by 75.60 years and 80.80 years for males and females respectively. On the other hand, Canada has a life expectancy of 81.38 with the females having 84.10 and the males 78.81.2 Unlike other Americans, Canadians enjoy better health and live longer. Comparing its health expenditure per capita in the last decade, there has been a significant growth from 1930.468351 to 4379.760838 with a GDP of 39,599.04.

The impact of longevity on health care expenditure between these two nations significantly differs when compared for short and long term periods. Both countries’ response to health-related quality of life and life expectancy is high with 50.2% for US and 65.5 for Canada. It is imperative to note that life expectancy at birth for these two nations is also higher with the US having 77.2 years while Canada 79.7 years. In United States alone, there are about 77 million boomers, a group of individuals aged between 45 and 65 years. This figure represents about 30 percent of the total populace. Six million boomies sojourn in Canada. These are significant age groups that have a positive effect on the overall healthcare spending bearing in mind that the generation is already at the threshold of old age or is already sailing in old age. In Canada, individuals of age 39.7 years represent the median age. This is a significant growth and change from the 26.2 years in 1971. The number of the elderly has continued to grow over the past. Reports in Canada 2010 indicated that the number of the aged of 80 years and over was 1,333,800 people.

France

France has increased its expenditure in health care in the recent past for the purpose of providing health care that is excellent and all-round to its citizens. Unlike the UK, citizens can in France can easily access and use new drugs. Longevity in life among French citizens is high. This is especially among French women. Compared to Britain that has a life expectancy of 79.4 years, longevity among French women has raised life expectancy in France to 80.7 years. This rate is also higher than that of UK by about two and a half years. The effects of changes in demography in France are due to the rise in health care expenditures especially at the macroeconomic level.3 However, this is quite minimal when changes in practices are put into comparison. Research study further reveals that the changes in age structure is 3.8 times less likely than changes in practice in accelerating health care costs within the 8-year period. Comparing its health expenditure per capita in the last decade, there has been a significant growth from 2438.839224to 4797.965556with a GDP of 41,050.89

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Korea

Life expectancy among the population in Korea is 79.05 years. According to statistical reports 2011, the females have high life expectancy than the males. This is represented by 79.05 years and 75.84 years respectively. The aging population has been blamed for the increasing health care costs in Korea. By 1970, only about 3 percent of the entire Korean population consisted of the older generation aged 65 years and above. This figure had risen to about 5 percent by the start of the 90s while in 2005; the old population was estimated to be at 9.1 percent. Its health expenditure on the public in the last decade has indicated a significant growth from 47.3722863 to 54.13037189 with a GDP of 17,078.21. As can be noted from these figures, the time within which the old age Korean population needs to grow by a difference of 2 percent is getting shorter. 4This implies that the process of aging is now being attained much faster than it used to be some decades back. However, employers have also been very instrumental in supplementing government effort in offering alternative solutions to health care insurance cover. It is against this background that aging is not a major driver of health care costs in Korea. In fact, this demographic factor has been found to play insignificant part in accelerating health care expenditures.

Netherlands

Demographic changes in Netherlands have an impact on population composition and size and this significantly affects migration, mortality and fertility. Life expectancy among the population in Netherlands is 75.10 years. According to statistical reports, the females in this nation have high life expectancy than the males represented by 71.30 years and 78.80 years respectively. Additionally, the significant implications on health care and the environment that the growing number of migrants, ageing population and the growing population in Netherlands has is immense. Utilization of health care services by the older generation has been found to be more costly since those who belong in the older age group tend to bear the greatest brunt of disease burden. Comparing its health expenditure on the public in the last decade, there has been a significant growth from 62.70888021 to 77.2556416 with a GDP of 47,916.90. There are about 2,000,000 people in Italy who were not only aged, but are also disabled in one way or another. When disability among the older generation is incorporated in the analysis of health care expenditure, the figure is found to be even higher than would be expected in the absence of disability.

Sweden

The element of cost in Sweden when accessing health care services plays a critical role in elevating health expenditures across all age groups, not merely among the elderly. Life expectancy among the population in Sweden is high. It is estimated to be 80.90 years. According to statistical reports, the females have high life expectancy than the males. This is represented by 78.70 years and 83.00 years respectively. Research studies indicate that an economical factor such as inflation is a major driver in accelerating health care costs in Sweden. From the study results, it became clear that the older people had a more frequent use of healthcare facilities than the younger generation. The elderly in Sweden have a higher likelihood of using ambulatory services more than the population aged below 65 years. Besides, they tend to seek frequent medical consultations or being treated from time to time. In some cases, they may be admitted in health care facilities as they wait for full recovery. In comparison to the younger lot of 35 years and below, they take relatively shorter time on health facilities even if they have to be admitted for inpatient services. Moreover, there are several incidences when the ailing elderly people may demand to undergo some surgery in order to cure various complications. The need to seek health care services is optimum at the between 75 and 79 years of age. Eventually, the trend levels down and drop off. Its health expenditure on the public in the last decade has significantly grown from 85.72675414 to 78.62889198 with a GDP of 43,653.69.

Finland

Life expectancy among the population in Finland is high by 79.27 years. Statistical reports 2011, indicates that the females have high life expectancy than the males represented by 82.89 years and 75.79 years respectively. About 40 percent of the Finnish population comprise of the ages 65 and above.5 The total expenditure incurred among patients who are of age 65 years and above amounts to about 55 percent of the total health care cost. Research studies indicate that age has a significant contribution to health care expenditure especially when long term care is put into consideration. Age in Finland is directly proportional to health care expenditure. Comparing its health expenditure on the public in the last decade, there has been a significant growth from 71.48064054 to 72.05250384 with a GDP of 44,580.70.

United Kingdom

In the UK, individuals at the age of 60 and above spend more on health care compared to the younger generation. It has been established beyond any reason able doubt that this group utilizes more finances on health expenditures as they grow older. In the UK, life expectancy is high at 79.40 years. According to statistical reports 2011, the females have a high life expectance than the males represented by 77.20 years and 81.30 years respectively. Moreover, comparing its health expenditure on the public in the last decade, there has been a significant growth from 80.62643929 to 83.62546538 with a GDP of 35,164.86.

Finland

The healthcare system in Finland share several similarities with other Nordic countries. This implies that the modes of health care financing, the institutional structure as well as objectives. The health care system has been structured in such a way that the entire population is covered while the major source of revenue is taxation. The municipal health services are catered for by the local government authorities who have the jurisdiction over the 432 municipalities. Both specialist care ad primary services are provided by the municipalities. In addition, nursing services, child day care services as well as care services for the older generation is taken care of. In the event that patients access health care services from the private sector, the National Health Insurance has a subsidy program to assist in minimizing health care costs in expensive private facilities. In a research study by Hakkinen et al to determine the relationship between age and health care expenditure, the researchers used 40 percent of the Finnish population who were over the age of 65 and above.6

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Besides, a follow up program for the target age bracket was initiated and the individuals were tracked down until the close of 2002. A unique code was used to identify the individuals, the Finnish Population Registration System was linked with hospital register from Finland alongside other vital data records such as Cause of Death Statistics records as well as the benchmarking projects. The data attached to each of the individual encompassed information on all services obtained from inpatient hospital facilities, outpatient services as well as specialized care services involving non-psychiatric care. Besides, the related health care costs records were kept alongside the socio-economic status of the patients. The researchers made use of the data gathered from approximately 80 percent of the costs on health care. The total expenditure incurred among patients who were 65 years and above amounted to about 55 percent of the total health care cost. It was found that age has a significant contribution to health care expenditure especially when long term care is put into consideration. Age is directly proportional to health care expenditure.

However, the time to death was also found to be a necessary consideration when computing these figures. For instance, there was a likelihood of 10 percent among those who died in 1999 to end up being long term care users than those who did not die at this time. However, this probability increased to 30 percent for individuals at the age of 85. Nonetheless, it was note that the difference went down minimally when the individuals attained 90 years of age.

In addition, a total of 27,000 Euros was spent on long term care among patients at the age of 65 and above. These health care costs were also found to increase exponentially when the time of death was stipulated at a given standard and rigid time. It was found that after 75 years, the related long term care costs began to rise. For example, health care expenses for an individual aged 85 years was four percent more than the one aged 75 years given the fact the fact that they passed on the same year.

Statistically, the difference on health care expenditure was found to be significant and age as a factor could not be ignored. The study model employed by the researchers was equivocal in the sense that the results obtained from basic specification revealed that female patients demanded more spending in health care, ranging between 7 and 11 percent higher than in males. The correlation between age and health care costs is strongly determined in specialized care whereby the nearness to death is a major factor of consideration. As noted in the research findings, this is especially common among individuals who are not in any long term care. Individuals who died in 1999 had a higher expenditure. It is imperative to note that health care costs among this group of individuals were found to go down with age. For those who died four years later, their health care expenditure was lower than those who died earlier. Nonetheless, expenditure among this category of people was found to reduce with an increase in age. the major difference note was that for those who survived, their expenditure increased exponentially with age till they clock 87 years.

On the same note, a 65-year old individual who passed away in 1999 was found to have a higher expenditure amount to about 7 times higher than the expenses of an individual who did not die at the same time though they have the same age. An increase in age triggers a decrease in the ratio. For a person aged 90, the ratio was estimated at 2.5. However, the naïve model gave contrasting results when it was applied among individuals under somatic specialized care. The results revealed that an increase in age led to an equal rise in healthcare expenditure among inpatient heath care patients found in psychiatric wards. However, when proximity to death is put into consideration, the correlation between age and health care costs diminished substantially. When medicines are prescribed to individuals, the expenditure on health care reduced with age. this was notable among persons who passed away in 1999. However, this relationship was completely different for survivors since the health care costs increased with age up to the age of 80 but started to decline thereafter.

According to the overall research findings by Hakkinen et al, an increase in age results into higher spending on health care among the elderly people.7 However, the use of naïve model tends to assume an ideal situation whereas the relation between the two components lacks clarity. There are quite a number of deviations that are prevalent. Hence, when such projections are being made, it is pertinent to put into consideration all the latent factors that may cause deviations at some point. The researchers further noted that the fact that age has an effect on health care costs is largely supported by the use of long term care services in the study analysis. When long term care is factored during the process of analysis, it is found out that proximity to death attenuates the direct relationship between age and health care expenditure.

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USA, Canada and other European countries

The United Sates has continued to experience growth in health care expenditure for some years now. However, there are some indications of moderation according to recent statistics on health care expenditure. One area of concern over the past few years has been on the total amount being spent on medication among various age groups. Medication alone is consuming about 16 percent of the total health care costs. As a result, the government has stepped up efforts to boost capital spending and investment on health care sector amidst the growing population triggering higher demand for health services. For instance, molecular biology has witnessed technological investment over the last few years whereby medical instrumentation as well as biomedical engineering is being embraced more than the earlier years.

Although health care costs has continually skyrocketed in many parts of the world, the significant role played by age is yet to be researched upon although much development has already taken place in an attempt to establish the connection between the two components.

An aging population has been attributed to the rising cost of health care in United States and elsewhere. There is a host of evidence which reveals that spending on health care tends to increase as people grow older. In United Sates alone, there are about 77 million boomers, a group of individuals aged between 45 and 65 years. They also represent about 30 percent of the total populace. Six million boomies sojourn in Canada.8 These are significant age groups that have a positive effect on the overall healthcare spending bearing in mind that the generation is already at the threshold of old age or is already sailing in old age. This elderly population is no longer able to work or fend for themselves effectively and consequently they tend to rely on the younger and energetic generation for social and financial support.

Needless to say, the aging population may not just ne a liability in terms of social support; their health care expenditure is also at stake since they have higher probability of developing chronic conditions that require long term medical spending before they reach the time of death. A 2003 research study on Canada revealed that the per capita revenue was slightly below 4,000 dollars. However, a study on expenditure by different age groups found that a total of 17,000 dollars could be spent in one person only who is at the age of 85 years.9 This seems to be a similar worry in Britain since health care spending among the elderly is proportionately rationed in order to curtail the huge possible spending among the older people. On the same note, the Medicare program under the United States health care program remains to be the major source of catering for health care costs among the elderly people. This program is fully supported by public taxing. It is a vivid indication on how these governments are not willing and able to fully support elderly health care expenditure owing to staggering costs.

All the countries put under study revealed that individuals at the age of 60 and above are anticipated to demand more spending on health care compared to the younger generation. It has been established beyond any reason able doubt that people tend to consume more fiancés on health expenditures as they grow older.

Health expenditure by age-groups.
Health expenditure by age-groups.

The above figure is a presentation of the United States health care spending in comparison to different age groups. In a more analytical overview of health care spending in United States, it is pertinent to note that each of the individual patient aged 65 years and above spent a total of 14,797 dollars in 2004 alone. When this rate is compared with per child, the latter is found to be approximately 6 times lower, having stood at 2,650 dollars per child the same year. Those in the working age were individually found to have spent 3.3 times lower than the elderly age group (65 years and above). Recent research studies also agree with these research findings since there has not been any significant change in value spending since the last two decades. It is also interesting to note that the public health care spending among children stood at 13 percent in 2004 although this lower age group constituted only 26 % of the total populace10. It also worth to note that the baby boomers as well as those in the active working class recorded a higher spending on health care at 52 % while they were also the majority age group in the population at 62 %. When the elderly were analyzed separately, it was evident that they were among the smallest in population size (about 11 %) while they demanded a whopping 34 % of the total health care spending budget.

Korea

The aging population has been blamed for the increasing health care costs in Korea. By 1970, only about 3 percent of the entire Korean population consisted of older generation aged 65 years and above. This figure had risen to about 5 percent by the start of the 90s while in 2005; the old population was estimated to be at 9.1 percent11. As can be noted from these figures, the time within which the old age Korean population needs to grow by a difference of 2 percent is getting shorter. This implies that the process of aging is now being attained much faster than it used to be some decades back. There are a variety of approaches that can be adopted to determine how ageing affects health care spending. Firstly, a researchstudy on how expenses on health care correlates with age with time can be conducted. This is the simplest approach to use. Nonetheless, such a simple approach is prone to errors since it tends to overlook other substantial factors.

It is evident that the aging Korean population has multiple health care expenditures compared to the younger generation12. Various types of analysis were used by the researchers such as regression analysis of the data obtained among other latent processes to minimize the error margin.

The first approach used to investigate the effect of aging on health care expenses was observation of the different age groups in terms of their medical cost profiles. As anticipated, the medical costs for younger generation were relatively lower than for the older people. Besides, when price index was excluded in the treatment cost was equally higher for older individuals. It is against this backdrop that the two researches managed to explain the reason why medical resources which are allocated to older Korean population is on the rise. The surplus resources have to be shared for the older people so that they can prolong their lifespan in consideration of the fact that most of them may have developed one or more chronic conditions that require heavy and regular financial spending.

Notwithstanding this verdict, the researchers argued that aging alone cannot be considered as an independent variable that drives the high cost of medical spending. This argument connects well with other research studies conducted in the past on the relationship between the two parameters. The unanimously agree that other factors such as education and income level are equal determinants of health care expenditure. The Sisyphus syndrome has existed for long. For instance, the period between 1977 and 1988 witnessed the syndrome in Korea. However, it later dissipated due to the emergence of other negative effects. It is also quite cumbersome to interpret certain research results carried out in the past like that of Ryu, Kim and Lim. The Korean case presents much difficulty especially if these results are to be relied upon. Although the first approach used by Tchoe and Nam (2009) was fairly reliable, the research study was repeated using regression analysis so that the inevitable limitations could be overcome.

When the second approach was used, it concluded that aging is not a major determinant or a sole variable in the rising health care costs especially in OECD countries. The time series data was used in analyzing the Korean case. From the research findings, it was established that in spite of the faster rate of aging, the latter was not a landmark factor in accelerating health care costs.

In Korea, the period between 1991 through 2003 saw an increase of about 6.7 percent in medical expenses attributed to aging. Nonetheless, the aging contribution to medical costs would have been 9.2 percent if inflation was factored in the process of regression analysis. The researchers were well convinced that were it not the related costs occasioned by the effect of inflation, aging would have minimally contributed to the rising health expenditure in Korea. They considered other factors such as the inception of health insurance cover and individual income levels as stringer factors worth noting. In addition, Tchoe and Nam argued that it is superficial to strongly correlate the high medical expenses with aging as a major contributing factor. It is the factors that accelerate aging that are responsible for elevated medical costs. Moreover, age is more of an endogenous than an independent variable when its effect on medical costs is considered. The researches further reiterate that aging is uniquely a mediator when reasons behind rising medical costs have to be explained in totality.

Further statistics

Annual and Lifetime health care spending based on age.

Life Table Cohort Survivors
(1) Age (2) Annual Per Capita Expenditure (3) Lifetime Per Capita Expenditure (LEba) (4) Relative Lifetime Expenditure (RLEba) (5) Annual Per Capita Expenditure (6) Lifetime Per Capita Expenditure (LEsa) (7)Relative Lifetime Expenditure (RLEsa)
0 $3,432 $316,579 100.0% $2,920 $316,579 100.0%
20 $1,448 $291,745 92.2% $1,255 $296,363 93.6%
40 $2,601 $252,082 79.6% $1,929 $262,124 82.8%
65 $10,245 $153,944 48.6% $7,702 $188,658 59.6%
85 $17,071 $38,400 12.1% $7,688 $113,685 35.9%

From the above table, it is notable that the much of health care spending is incurred during the last half of life. This accounts for close to 80 % of the total health care incurred by an individual during old age.

Netherlands

The use of health care services by the older generation has been found to be more costly since those who belong in the older age group tend to bear the greatest brunt of disease burden. A case study of Netherlands reveals it all. Incidents of chronic conditions such as prostate cancer were widespread among men between 1983 and 1993 while women suffered a lot from breast and lung cancer. However, there were fewer episodes of men suffering from prostate cancer while the condition in women became stable from the start of 1997. Hence, the previous trend was rendered insignificant with the new developments. Nonetheless, diabetes mellitus prevalence went up. The possible explanation given to this observation was that early detection of the chronic condition had substantially improved.

Individuals aged 65 years and above also reported lower cases of physiological complaints mainly due to improved social status. There is no conclusive evidence from recent research covering Finland on the link between disability and age in relation to health care costs. However, there were a total of two million people in Italy who were not only elderly, they were also disabled in one way or another. When disability among the older generation is incorporated in the analysis of health care expenditure, the figure is found to be even higher than would be expected in the absence of disability. Contrastingly, some OECD countries have recorded a lower disability rate among the aging population. This may hardly be the case with the developing world where individuals aged 65 years and above have a higher probability of developing long term physical impairment that may render them disable, only to accelerate health care costs. There are numerous studies that have queried quite a number of databases that implicates age as a factor in rising health care costs13. In most of these studies, it goes without saying that higher rates of health care expenditure among the older generation is a contribution of more than just aging since consensus has not been reached whether it is a sole or main factor worth considering. It is against this background that the remaining part of this paper attempt to explore and investigate how aging contributes to higher health care costs.

To begin with, increase health expenditure may not be explained fully by considering aging as the main factor. It should just be a minor portion. For instance, it is factual that technological advances in medical care has more than doubled the cost of health care as individuals seek better health attention on chronic and more delicate conditions. A case overview of Sweden found out that the element of cost when accessing health care services plays a critical role in elevating health expenditures across all age groups, not merely among the elderly. Economical factor such as inflation has been identified as major driver in accelerating health care costs in Sweden. On the same note, data derived from OECD countries indicate that in a thirty year period beginning from 1965, health care costs lacked stability not because of the increasing number of elderly people but largely due to economical factors within and without these countries. Notwithstanding this consideration, it is only fair to argue out that aging still remains to be a factor worth considering when computing the rising trend in health care expenses.

In one of the latest research studies by Survey of Health, Aging, and Retirement in Europe, 20,000 individuals of European origin and aged above 50 years were taken through a survey on how often they seek medical attention from health care facilities. The frequency of medical consultations against their individual ages was noted and later taken through data analysis. From the study results, it became clear that the older people had a more frequent use of healthcare facilities than the younger generation. The elderly have a higher likelihood of using ambulatory services more than the population aged below 65 years. Besides, they tend to seek frequent medical consultations or being treated from time to time. In some cases, they may be admitted in health care facilities as they wait for full recovery. In comparison to the younger lot, they take relatively shorter time on health facilities even if they have to be admitted for inpatient services. Moreover, there are several incidences when the ailing elderly people may demand to undergo some surgery in order to cure a certain complication. A case example of prostate cancer is a suitable illustration.

As research evidence has it, when the elderly people attain the age of 80, the impact on health care expenditure seems to diminish significantly. In a more reasonable argument, it is quite right to conclude that the above research study reveals one major fact worth considering; that the need to seek health care services is optimum at the between 75 and 79 years of age. Eventually, the trend levels down and drop off.

France

The increase in per capita health care cost is often a definite threat to any developed country whenever the population of the older population surges. Given the health care expenditure for the older individuals, it is usually presumed that their health care related costs are triggered by age as the major function. However, the question remains to be the degree of aging in driving health care expenditures in comparison with other demographic factors14. In a research study of France by Dormont, Michel and Huber the researchers used micro data to investigate the effect of demographic changes especially in respect to the element of aging in the determination of health care expenditures15. The research study covered the period between 1992 and 2000. By use of a retrospective analysis, the impact of the aging population on health expenditure was determined although as the researchers noted down, this time period was rather short for a comprehensive analysis to take place.

In most micro-economic study papers, the impact of aging on health care costs has been considered to be minimal since other stronger factors like Gross Domestic Product (GDP) and changes in a country’s economic conditions have stronger impacts on the rising costs of health care. The researchers also emphasize the fact that when proximity to death is put into consideration, the impact of aging on an individual basis is markedly lowered. Under normal circumstances, health care expenditures is anticipated to rise with age. However, the case study of France between 1992 and 2002 exhibited an upward drift which was quite significant. The explanation given for this significant drift is that there might have been shifts in health status at a certain age.

In the analysis, a sample of 3,441 as well as 5,003 individuals from France was used in an attempt to correlate the effect of aging on health care costs. Within the given time frame (1992-2000), a micro simulation approach was applied by the researchers as a way of determining the major elements or factors that caused the drift in health care spending in France. According to the research results, a downward drift in health care costs was induced by the changes in morbidity16. On the other hand, changes in practices were largely responsible for upward drift in health care expenditure in France between 1992 and 2000. Additionally, the researchers made every attempt to incorporate and apply the research results in the age structure analysis

As part and parcel of comparing the overall effects of changes in demography within the given period. It was found out that the contribution of demographic changes to the rise in health care expenditures especially at the macroeconomic level was quite minimal when changes in practices were put into comparison. The case study of France further revealed that the changes in age structure was 3.8 times less likely than changes in practice in accelerating health care costs within the 8-year period. It is perhaps very important to investigate why the French case study yielded quite contrasting results compared to other OECD and developing countries. A better explanation can be offered when the French health care system is explored in details. To begin with, it is understood the health insurance system in France is under the public domain in addition to the fact that all citizens have access to it since it is universal. Almost the entire population is covered by this health care insurance scheme which is expected to run throughout the lifespan of an individual. Moreover, the insurance is such comprehensive in the sense that individuals covered have unlimited access to health care with minimal limitations as it is common in other OECD countries. For instance, services such as ambulatory care are easily accessed by patients at their own will. However, drug prescriptions are determined by medical doctors since it is quite sensitive to take drugs without consulting physician’s directive17.

Another striking feature of the French health care system is that hospitals are hardly used specialist consultations. Instead, such services are offered in ambulatory care. Patients have been having free access to special care practitioners until 2006. All the hospital costs are covered by the system while up to 70% of ambulatory care is catered for by the health care system. Over and above the public insurance cover, the better part of the population estimated at 80 % has alternative health insurance cover to supplement the one provided by the government. In most cases, the complimentary insurance may be as a result of an individual’s choice. However, employers have also been very instrumental in supplementing government effort in offering alternative solutions to health care insurance cover. It is against this background that aging is not a major driver of health care costs in France. In fact, this demographic factor has been found to play insignificant part in accelerating health care expenditures.

New Zealand

The case study of New Zealand depicts a completely different picture contrary to the global perspective that aging as a negligible impact on health care and spending. Empirical records reveal that the older individuals aged 65 years and above would spend five times more in health care than individuals below this age within the same population18. The most worrying trend is that the population of the elderly is expected to double itself in nest five decades or so. It is definite that government spending on health care will have to be strained significantly by this surging growth in the population of the elderly. As already mentioned, the case of New Zealand sharply conflicts international evidence that aging is inconsequential in the acceleration of health care costs19. For New Zealand, it is imperative to note that the status of an individual’s health is paramount in deciding the health care costs to be incurred rather than just the aging process alone. Additionally, the demographic expenditures seem to be outwitted by non-demographic ones. These are some of the issues worth exploring in order to fully appreciate the case of New Zealand and why the elderly have extremely higher medical expenditure than the younger generation20. In order to assist in the process of understanding the impact of both demographic and non demographic factors on health care expenditures, an aging model was drawn and used by both the Treasury and Ministry of Health.

After drawing the aging model, it was used to analyze the relationship between aging process and how much the New Zealand government would spend in health care among the different age groups. The study was carried out in the 2001-02 financial year. There are quite a number of considerations that were incorporated when computing the health care sending on individuals under different age brackets. For instance, elements such as health protection, control of diseases as well as the promotion of health were all considered as important parameters when computing public health spending. Moreover, disability support services were also incorporated in the aging versus health care spending model. Components considered here included the cost of residential care and home support for patients in different age groups as well as the nature and relative costs of equipment that may be required by different age groups.

From the research results, it was evident that disability support as well as personal care per capita expenses accelerated with age. However, the disability support services were found to be highly costly. For example, an estimated 61 % of medical costs were spent on elderly and disabled population aged 85 years and above. The question remains to be why aging increases health care expenditure in New Zealand. International studies on health care suggests that more health related expenses are more likely to be incurred by people in poor health compared to those whose health is in good state. On the same note, aging process increases the likelihood of developing chronic health conditions as well as disability.

The research study by Sonerson et al on New Zealand health care spending made use of demographic-health model component. First, they divided the population into different categories namely by gender and then by various age groups. A total of 20 age brackets were used in the model beginning from ages 0-4 ending with over 95. In addition, four health states were utilized in the study. Moreover, the different states were also analyzed in terms of disability and proximity to death.

From the analysis, it was found out that the elderly population within the range of 50 years and above has had a higher spending on health care over the past five decades. The spending is anticipated to grow from the current 11 percentage points to 23 percentage points in the next five decades. According to the model, the New Zealand government will have to spend over 60 percent of its health care allocation on catering for the elderly population aged above 65 years by the start of 2051.

The proportion of total spending will continue to increase among the elderly population in spite of the fact that spending among the younger generation will often rise more quickly than among the elderly. The fact the disability rates among the younger generation is low explains the reason why their individual expenditure will grow at a faster rate than among people in the older age group. When the disability rates are low, it implies that any attempts to reduce health care expenditure may experience little scope.

Critical analysis of the empirical research

The problems brought about by the process of aging is occasioned by quite a number of factors so to speak. One of the major causes is the decline in fertility rates which leads to a higher population of the elderly and in most cases, higher dependency levels for the younger population which is marginal in number. Besides, as baby boomers continue to retire from active spheres of life, the problems associated with aging are multiplied. Further, improvement in health care has led to increase in life expectancies leading to a higher population graduating into old age. This analysis cannot ignore the role played by immigration patterns evident across the world. This has been found to be a common pattern in many parts of the world, including the OECD countries and the industrialized world. The fact that populations will grow to old age is indeed a factor to consider when computing health care costs in relation to aging21. This is especially important in the developed world where health care is at advanced stage and most people can live longer than in developing and undeveloped countries. The dependency ratio among the elderly is projected o increase sharply over the coming years22. For instance, it is definite that countries like Canada and Japan will more likely double their old age dependency ratios in the next half a century or so.

The working age largely supports the rest of the population in any given country. Recent analysis on aging demonstrates that the ration of the working age groups is likely to go down in all the developed countries owing to a lower percentage of the younger population that is yet to enter the job market.

In spite of the overall argument that age is not a landmark factor in the skyrocketing of health care services, it is crucial to emphasize that even minor changes in a demographic variable like aging may have a substantial impact on the structure at 2050. When the aging impact is cumulated over a long period of time, say 50 years, the overall effect can be felt on the net expenditure on a country’s health care plan. The age profile on medical costs is the major indicator of how aging impacts the health care spending of a country24. Unless the relationship between age and per capita expenditure is well interpreted and understood, it may be cumbersome for economic analysts to fully quantify how aging can impact on populations25.A combination of these factors will heavily accelerate the dependency ratio among the elderly. It is pertinent to note that this dependency syndrome occasioned by old age will most likely focus on health care. The period between 2035 and 2050 has been noted to as the time when there will be significant reduction in working age in most of the countries covered in the above analysis. However, the United Sates is more likely to be spared of this brunt owing to the higher immigration pattern that has flooded the job market with expatriates. At this juncture, it is pertinent to underscore the point that the aforementioned estimates are just mean projections and slight deviations in specific countries are anticipated. Both the demographic and non demographic variables are covered in these projections23.

A case study of Netherland reveals that age and per capita health expenditure are directly proportional to each other in spite of the declining trend in the first five years when the research study was conducted. Such sound data cannot be refuted in totality. It is in order to argue that the cumulative weight of expensive ages is triggered by the impact of aging on any given population in the industrialized world. Simultaneously, the weight of cheap ages is also reduced if these projections are anything to go by. If this background is held constant, then the aging process has direct influence on health care expenditure26. The older population will demand higher spending on medical costs than the yonger generation. Nevertheless, there are specific case studies like that of France that deviates from this rule due to unique health care establishment in that country. From the above literature review, it is now necessary to assess how health care expenditure is affected by aging. There are several methods on boars that can be employed to determine how aging can markedly lead to rising costs of health care. The point of interest at this point is the determination of aging and medical expenses relate to each other regardless of the other factors which may have a stronger bearing on escalating costs of health care. It is understood quite well that factors like Gross Domestic Product, innovation as well as inflation are vital parameters that can be used to offer adequate explanation on why health care costs may rise at times.

In their analysis, Westerhout et al opted to use the standard projection method. As the researchers note down, the rise in health care costs in relation to demographic developments has not been assessed adequately in the past. Contrary to the popular belief that demographic variables play a momentous role in shaping health care expenditures, the empirical research confirms the very claim27. Although this might be the case in most countries covered in the above analysis with the exception of New Zealand, it is expected that as the percentage of the elderly population continue to increase year in year out, the cumulative effect will have a resounding impact on health care expenditures in the forthcoming decades28. For example, the dependency ratio among the older people in ECD countries is anticipated to rise to 32.7 % in the next two decades down from 20.6 % way back during the threshold of the new millennium. If these figures are to be credible enough as they expected to be, then the 12 percentage point increase in a span of 3 decades cannot be ignored at all.

Another superficial factor that cannot be ignored is the element of long term care in relation to ageing process and health care costs. When long term care is integrated in the study and then related with ageing process, it is found that the curve obtained is far much steeper than that of normal health care expenditure. This is expected since long term care during old age accelerates medical costs29.

Case analysis of England and Wales

An empirical research study of England and Wales on the budgetary allocation on health care found out that in the preliminary years of life, medical expenditure tend to be higher. It moderates during the middle ages and shoots up again at old age. Two main triggers to high medical expenses were note in England and Wales. These were the onset of long term health conditions as well as higher incidences of physical and psychological disabilities. The data published by OECD on the medical costs incurred by different age groups assists in understanding how per capita expenditure on health care is distributed throughout in life30.

The table below highlights the data obtained from two west European countries; England and Wales. The overall picture as depicted in the table is not in isolation with the wider OECD estimates in other countries. Indeed, the figures are also consistent with the data found in most recent literatures on demography and health care.

Age group Relative expenditure
0-4 1.00
5-14 0.4
15-44 0.53
45-64 0.82
65-74 1.70
75-84 3.20
85+ 5.52

Source: International Institute for Applied Systems Analysis.

Most of the age groups covered by the data exhibit stability in spite of the short span of time covered in the empirical study (1982-1993). The elderly population within the bracket of 85 years and above are found to be the most expensive group to take care of medically with their health care spending index standing at all time high of 5.52. The age-specific indices ought to attain stability after sometime. When disability is brought on board as a factor of consideration when computing age and per capita health care expenditure; it is evident that previous year’s life presents itself numerous untold disability cases. The old age is by far and large, considered to be the period characterized with worst disability31. Consequently, the disabled old generation will often seek support and solace from the younger generation, only to increase the ratio of dependency level. OECD data obtained from Norway, Australia, United Kingdom and France underscored the fact that the period between 1980 and 1993 did not witness any substantial change on past data. The dependency level was found to be higher in females than males at old age. This implied that more women than men developed disabilities in the later years of life thereby prompting for assistance from the more energetic population.32

Bibliography

Das, Amaresh., & Martin, Frank. An Econometric Analysis of the US Health Care Expenditure. Global Journal of Health Science 2, no. 1 (2010): 150- 159. Web.

Denton, Frank T., Dean C. Mountain, & Byron G. Spencer. Age, Trend, and Cohort Effects in a Macro Model of Canadian Expenditure Patterns. Journal of Business and Economic Statistics 17, no. 4 (1999): 430-443.

Dormont Brigitte, Grignon Michel & Huber Helene. Health expenditure growth: reassessing the threat of ageing (2006): 1-29.

Ed W M T Westerhout. “Does Ageing Call for a Reform of the Health Care Sector?” CESifo Economic Studies 52, no. 1 (2006): 1-31.Web.

Felder, Stefan, and Andreas Werblow. “Does the Age Profile of Health Care Expenditure Really Steepen over Time? New Evidence from Swiss Cantons.” Geneva Papers on Risk and Insurance: Issues and Practice 33, no. 4 (2008): 710-727.

Fukuda, Kosei. “An Empirical Analysis of US and Japanese Health Insurance Using Age-Period-Cohort Decomposition.” Health Economics 16, no. 5 (2007): 475- 489.

Gabriele, S et al. “Demographic Factors and Health Expenditure Profiles by Age”, European Commission Enepri Research Report No. 8, 2006.

Garibaldi, Pietro et al. Ageing, Health, and Productivity: The Economics of Increased Life Expectancy, New York: Oxford University Press, 2010.

Hakkinen, u. et al. “Aging, health expenditure, proximity to death, and income in Finland.” Health Economics, Policy and Law 3, no. 2 (2008): 165-195.

Oxley, Howard. “OECD Experience with Projecting Age-Related Expenditure.” In Pensions: More information, less ideology: Assessing the long-term sustainability of European pensions systems: Data requirements, analysis and evaluations, 55-74. Boston; Dordrecht and London:, 2001.

Palangkaraya, A., and J. Yong. “Population ageing and its implications on aggregate health care demand: empirical evidence from 22 OECD countries.” International Journal of Health Care Finance and Economics 9, no. 4 (2009): 391-402.

Polder Johan et al. “Age‐specific increases in health care costs”European Journal of Public Health (2002) 12(1): 57-62.

Ray Turchansk. “Financial time bomb lurks; Facing up to shrinking revenues, ballooning health costs.” The Province, 2010. Web.

Ray Turchansky. “Financial time bomb ticking as baby boomers retire.” Star – Phoenix,

Seshamani, Meena, and Alastair M. Gray.”A Longitudinal Study of the Effects of Age and Time to Death on Hospital Costs.” Journal of Health Economics 23, no. 2 (2004): 217-235.

Sheiner, Louise. “The Effects of Technology on the Age Distribution of Health Spending: A Cross-Country Perspective.” Public Finance and Management 7, no. 1 (2007): 44-72.

Sonerson Audrey et al. “Population ageing and government health expenditure”. New Zealand Treasury Policy Perspectives Paper 05/01, 2005.

TchoeByongho&Nam Sang-Ho. “Aging Risk and Health Care Cost in Korea”,Asia Health Policy Program working paper #3 (2009): 1-24.

World Bank. “Investment in health: social and economic returns”, Washington DC: Pan American Health Organization, 2001.

Yasin, J., and M. Helms. “A comparison of health-related expenditures: a multi-country comparison.” Academy of Health Care Management Journal 6, no. 2 (2010): 1-19.

Zweifel Peter, Stefan Felder & Andreas Werblow. “Population Ageing and Health Care Expenditure: New Evidence on the ‘Red Herring.’.” Geneva Papers on Risk and Insurance: Issues and Practice 29, no. 4 (Special Issue 2004): 652- 666.

Footnotes

  1. Sheiner, Louise. “The Effects of Technology on the Age Distribution of Health Spending: A Cross-Country Perspective.” Public Finance and Management 7, no. 1 (2007): pp. 49-52.
  2. Hakkinen, U. et al. “Aging, health expenditure, proximity to death, and income in Finland.” Health Economics, Policy and Law 3, no. 2. Web.
  3. Ibid., 166.
  4. Hakkinen, U. et al. p.186.
  5. “Does Ageing Call for a Reform of the Health Care Sector?” pp. 14-19.
  6. Hakkinen, U. et al. p.168.
  7. Brigitte Dormont, Michel Grignon & Helene, Huber. Health expenditure growth: reassessing the threat of ageing” (2006): p.8.
  8. Ibid., p.18.
  9. Health expenditure growth: reassessing the threat of ageing” p.24.
  10. Seshamani, Meena, and Alastair M. Gray. “A Longitudinal Study of the Effects of Age and Time to Death on Hospital Costs.” Journal of Health Economics 23, no. 2 (2004): 219.
  11. Tchoe Byongho & Nam Sang-Ho. “Aging Risk and Health Care Cost in Korea”, Asia Health Policy Program working paper #3 (2009): p.8.
  12. World Bank. “Investment in health: social and economic returns”, Washington DC: Pan American Health Organization, 2001.p.65.
  13. Zweifel, Peter, Stefan Felder, and Andreas Werblow. “Population Ageing and Health Care Expenditure: New Evidence on the ‘Red Herring.’.” Geneva Papers on Risk and Insurance: Issues and Practice 29, no. 4 (Special Issue 2004): p. 658.
  14. Ibid., p.659.
  15. Dormont Brigitte, Grignon Michel and Huber Helene. “Health expenditure growth: reassessing the threat of ageing” (2006): 1-29.
  16. Polder Johan et al. “Age‐specific increases in health care costs”European Journal of Public Health (2002) 12(1): 57-62.
  17. Ed W M T Westerhout. “Does Ageing Call for a Reform of the Health Care Sector?” CESifo Economic Studies 52, no. 1 (2006): 1-31. Web.
  18. Sonerson Audrey et al. “Population ageing and government health expenditure”. New Zealand Treasury Policy Perspectives Paper 05/01, 2005.
  19. Das, A., and F. Martin. “An Econometric Analysis of the US Health Care Expenditure.” Global Journal of Health Science 2, no. 1 (2010): 150-159.
  20. Felder, Stefan, and Andreas Werblow. “Does the Age Profile of Health Care Expenditure Really Steepen over Time? New Evidence from Swiss Cantons.” Geneva Papers on Risk and Insurance: Issues and Practice 33, no. 4 (2008): 710-727.
  21. Palangkaraya, A., and J. Yong. “Population ageing and its implications on aggregate health care demand: empirical evidence from 22 OECD countries.” International Journal of Health Care Finance and Economics 9, no. 4 (2009): 391-402.
  22. Gabriele, S et al. “Demographic Factors and Health Expenditure Profiles by Age”, European Commission Enepri Research Report No. 8, 2006.
  23. Hakkinen, u. et al. “Aging, health expenditure, proximity to death, and income in Finland.” Health Economics, Policy and Law 3, no. 2 (April 1, 2008): 165-195.
  24. Sonerson Audrey et al. “Population ageing and government health expenditure”. New Zealand Treasury Policy Perspectives Paper 05/01, 2005.
  25. Yasin, J., and M. Helms. “A COMPARISON OF HEALTH-RELATED EXPENDITURES: A MULTI-COUNTRY COMPARISON.” Academy of Health Care Management Journal 6, no. 2 (2010): 1-19.
  26. Garibaldi, Pietro et al. “Ageing, Health, and Productivity: The Economics of Increased Life Expectancy”, New York: Oxford University Press, 2010
  27. Fukuda, Kosei. “An Empirical Analysis of US and Japanese Health Insurance Using Age-Period-Cohort Decomposition.” Health Economics 16, no. 5 (2007): 475-489.
  28. Ray Turchansk. “Financial time bomb lurks; Facing up to shrinking revenues, ballooning health costs.” The Province, 2010, Web.
  29. Ray Turchansky. “Financial time bomb ticking as baby boomers retire.” Star – Phoenix, March 22, 2010, Web.
  30. Brigitte, Dormont, Grignon Michel and Huber Helene. “Health expenditure growth: reassessing the threat of ageing” (2006): 1-29
  31. Sheiner, Louise. “The Effects of Technology on the Age Distribution of Health Spending: A Cross-Country Perspective.” Public Finance and Management 7, no. 1 (2007): 44-72.
  32. Oxley, Howard. “OECD Experience with Projecting Age-Related Expenditure.” In Pensions: More information, less ideology: Assessing the long-term sustainability of European pensions systems: Data requirements, analysis and evaluations, 55-74. Boston; Dordrecht and London:, 2001.

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