Ageing and the Challenges of New Technologies: Can OECD ... · Ageing and the Challenges of New Technologies: Can OECD Social and Healthcare Systems Provide for the Future? by Stephane

Ageing and the Challenges of New Technologies: CanOECD Social and Healthcare Systems Provide for the

Future?

by Stephane Jacobzone1

1. Introduction

Ageing and the new technologies illustrate how successful modern societies have beenin addressing challenges to push out the boundaries of human life and medical knowledge.They represent both a blessing and a concern for policymakers in charge of ensuring thelong-term sustainability of financing arrangements for health and long-term care systems.This sustainability is a key area of research, given the potential vulnerability of socialarrangements under fiscal pressures. At the same time, the implications of the currentdemographic transition experienced by developed countries are also better understood.Therefore, the question is whether in the light of the ageing process and the rapid introductionof new technologies, current health and social care systems can provide for the future.

Answers to this question will impact the distribution of health and wealth, the publicfinance arrangements in place in a number of countries, and ultimately the notion of socialconsensus upon which these societies are built. The share of health expenditure in GDPstabilized around 8.2 per cent between 1992 and 1999 for a group of 20 OECD countries.2

However, this share increased by two percentage points in the 1970s and by one percentagepoint in the 1980s. The current slowdown of the economy could lead to a further steep increaseof the ratio, particularly in those countries with rapidly increasing health expenditure, such asthe United States.

Ageing has paradoxical impacts. Healthcare costs are linked with age in micro data, andup to 40 or 50 per cent of healthcare expenditure is devoted to older persons as a result.However, there is no link between relative levels of spending and demographic indicators at anaggregate level. In addition, when the concentration of healthcare costs at the end of life istaken into account, the impact of ageing on future health expenditure is lessened. Therelationship between ageing and healthcare expenditure is therefore far more complex. Mostempirical results tend to show that differences in income, supply-side and institutionalvariables account for most of the differences in healthcare expenditure across countries,although cohorts and generation effects may also play a role.

1 The author was with the Social Policy Division of the OECD when this article was prepared. He thanks thenetwork of experts from national public and academic institutions who have helped with the study, colleagues fromthe Secretariat for useful discussions and exchange of information: Manfred Huber, Howard Oxley and Peter Scherer.The views expressed here are the author’s sole responsibility and do not represent those of the Organisation or itsmember countries. The author also thanks Veronique De Fontenay for her wonderful research assistance.

2 This group includes Australia, Austria, Canada, Denmark, Finland, France, Germany, Iceland, Ireland, Italy,Japan, Luxembourg, New Zealand, the Netherlands, Norway, Spain, Switzerland, Turkey, the United Kingdom andthe United States.

The Geneva Papers on Risk and Insurance Vol. 28 No. 2 (April 2003) 254–274

# 2003 The International Association for the Study of Insurance Economics.Published by Blackwell Publishing Ltd, 9600 Garsington Road, Oxford OX4 2DQ, UK.

Trends in long-term care systems are affected by trends in disability, de-institutionaliza-tion and changing social models. Recent results show that most countries experiencereductions in disability (Jacobzone, 2000) and, to some extent, a de-institutionalization oftheir older population. This will have an impact on the future number of older persons needingcare, but less of an impact in terms of public finances. However, if older persons are lessdisabled, they may still suffer from significant morbidity: reductions in disability may resultfrom costly new healthcare technologies. As developed societies need to provide better healthand long-term care with limited resources, they will have to assess better the use of newmedical technologies in terms of their cost-effectiveness, and in terms of their private andpublic benefits.

2. Background

2.1 The policy implications of ageing

The current demographic transition experienced by industrialized countries is the resultof decreased mortality at higher ages, which results in an increasing share of the populationaged 65 and over in the overall population. These decreases in mortality are observed up to thehighest age groups, and are resulting in a rapid increase in the population of the oldest agegroups, such as centenarians. This overall demographic transition is the result of better socio-economic conditions (Fogel, 1994). In recent years, some evidence points to the specific roleof healthcare improvements and new medical technologies in the gains of longevity obtainedat higher ages.

Ageing requires a shift in the policy focus, with greater weight attached to long-termperspectives, and a clear understanding of the fiscal implications of age-related expenditure.The OECD has recently estimated tentative projections of age-related expenditure (Dang,Antolin and Oxley, 2001). Ignoring education, where the potential savings are, in fact,negligible, the bulk of resources need to be directed towards pensions, health and long-termcare. A better understanding of ageing also requires developing a specific informationinfrastructure, with more emphasis on longitudinal data, similar to the efforts developed in theUnited States, with the Health and Retirement Survey, and the National Long Term CareSurvey.

The issue of long-term care is also very important (Jacobzone, 1999) and needs to beconsidered jointly with pensions and healthcare, as a mix of policies directed towards olderpersons. The needs of an older person may be different at the very end of life when he or she isplaced in a nursing home: there might be less need for monetary income and more need forhigh-quality care. In the public debate on ageing, the discussions often focus on pensions, asthe distribution of pension expenditure is more sensitive to the age structure of the populationthan the distribution of health expenditure (Blanchet, 1994). However, in the long term, healthand long-term care may represent an even greater challenge for public finances than pensionsin many countries. The discussion in this paper will focus on resources ‘‘in kind’’, that ishealth and long-term care.

2.2 The diffusion of new technologies

The diffusion of new technologies is the other key factor when discussing the rise ofhealthcare expenditure. In the policy debate, many analysts tend to attribute the rapid growthin health expenditures to ageing, whereas, in fact, this growth mainly results from the

# 2003 The International Association for the Study of Insurance Economics.

AGEING AND THE CHALLENGES OF NEW TECHNOLOGIES 255

Table 1:Sources of data underlying the health expenditure profiles

Country Sources of data Comments

Australia Goss (1994); AIHW (1997) This reports total expenditure for 1989–1990. Cost of hospitals is computedaccording to an average of admission rates and bed day usage (as bed dayonly overstates the costs for older persons). The New South Walesproportions were used for Australia. Fixed costs and research were allocatedon a per person basis. Capital expenditure and administration were allocatedusing the same proportions as were calculated for recurrent expenditure.

Belgium Clausse (1997) and Federal Plan Bureau This corresponds to the reimbursements by the national sickness fund(INAMI) for the socialist funds for the whole country except Brussels in1994 (this corresponds to 25 per cent of the population). Similar data wereavailable for two socialist funds in 1992 (Liège and Alost). For the Christianfunds this covers all the affiliated individuals, (except Brussels), whichrepresents about 25 per cent of the population in 1995. This is publicexpenditure only and excludes pharmaceuticals.

Canada Health Canada (1996, 1997) This includes an estimate of total health expenditure by age and gender.Additional breakdowns by types of expenditures and types of governmentare also available. The number of hospital stays was used as a proxy forhospital expenditure. The distribution of residents in residential carefacilities was also used as a proxy for expenditures on residential care.Expenditure on pharmaceuticals for older persons was obtained from thePharmacare programmes, and estimated for the rest of the population.Private health expenditure was estimated from the Survey of FamilyExpenditure conducted by Statistics Canada.

Finland Hakkinen (1996) This includes all the expenditure, including some of the care for elderlypeople.

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France Mizrahi and Mizrahi (1985, 1988, 1995) French National Health Surveys (1963, 1980, 1991). 1980 Survey:expenditure recorded by households during three months. This is ahousehold-based survey and excludes permanent residents in hospitals (formore than three months) or related institutions. As a result, this understatesby around 30 per cent hospital expenditures compared with nationalaccounts. However, the methodology is constant over time. Problem ofattrition also. This is an estimate of total expenditure.

Germany Deutscher Bundestag (1998) Public expenditure by the public health insurance funds (GKV) over timefrom Prognos 1995. Specific estimates for the reimbursement for theprivately insured (this is the first dollar coverage for the upper income decileof the population) are also available in Deutscher Bundestag 1998.

Italy Data supplied by ISAE, Rome Private expenditure was estimated by using data from ISTAT Survey onhousehold’s consumption in 1997, and correspond to household’sexpenditure by age of the head of household. Data on private expenditureunder the age of 24 and above the age of 90 are not significant.

Japan National Medical ExpendituresEstimates

This shows publicly reimbursed health expenditures.

New Zealand Ministry of Health and Treasury This covers personal health services, with primary and secondary services(GPs, Hospitals, Pharmaceuticals). Data were available for 1994–1995 and1998.

Netherlands Meerding, Bonneux, Polder,Koopmanschap and Van der Maas(1998)

Data include total health spending, including long-term care, and onlyexcluding some personal expenditures such as counter medicines andspectacles. Stays in nursing or hospitals, outpatient visits were used toallocate expenditure by age groups.

continued overleaf

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Table 1:(continued)

Country Sources of data Comments

UnitedKingdom(England)

Department of Health, England Hospital and Community Health Services. This excludes services providedby GPs, dentistry outside the hospital setting, pharmaceutical expenditureoutside hospitals and optician services. Data was available since 1983, but achange in methodology in 1991 does not allow comparison of the variousprofiles over time.

United States Cutler and Meara (1997) (1963–1987);Hodgson and Cohen (1999)(1987–1995). See also Waldo et al.(1989)

Analysis based on National expenditure surveys: 1963 (8,000 indiv.) and1970 (11,600 indiv.); surveys of Health Services Utilisation andExpenditures, the 1977 National Medical Care Utilisation and ExpenditureSurvey (38,800 indiv.); and the 1987 National Medical Expenditure Survey(34,500 indiv.). Long-term care is excluded.

United States Waldo et al. (1989). Public and privateexpenditure

Programme data for Medicare, Medicaid and the Veterans Administration,and the National Medical Care Expenditure Survey (NMCES) and NationalMedical Care Utilisation and Expenditure Survey (NMCUES) 1977, plusNational Health Interview Survey. This allows for the public/private mix.

Source: published materials and communications by the authors. See references in the bibliography.

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diffusion of new technologies. This often leads to biased judgments and ill-formulated policydebates, where ageing is used to promote a ‘‘doomsday’’ perspective. In fact, takingtechnology into account allows for a better understanding of the underlying trends inhealthcare systems. The diffusion of medical technologies in the Western world is highlydependent on the institutional and economic incentives prevalent in the U.S. healthcaresystem (Weisbrod, 1991). These incentives generate a very innovative system, but also onethat favours ever more costly new technologies.

After market entry, the patterns of diffusion within healthcare systems are mostly subjectto supply-side economic incentives embedded in healthcare systems. These are, in turn,related to the relative propensity of government and healthcare systems to pay for thosetechnologies. This is illustrated in a number of studies. The work by the TECH network,(McClellan and Kessler, 1999; TECH, 2001) is devoted to the diffusion of new invasivetechnologies in the case of heart attacks. Current OECD work on ageing-related diseasesextends these results further, to the treatment of ischaemic heart disease and other conditionssuch as breast cancer and stroke (OECD, 2003): supply-side incentives play a key role in termsof the availability and the use of costly technologies: MRIs, lasers, mammography machines,PTCA, catheterization laboratories, etc.

Many developed countries are facing decreasing marginal returns of medical technol-ogies through their widespread use. The technologies are often assessed under well-definedcircumstances in medical trials, with limited samples but their subsequent use might beextended well beyond the range of initial efficacy (Phelps, 1997). McClellan (1996) finds that,if the overall returns to technological change are not declining, the incremental value oftreatment provided by high-tech hospitals was low for heart attack patients in 1984–1990 inthe United States, supporting the view that new technology was overused. The widespread useof technologies may translate into a reduced effectiveness: the more we use the technologies,in a sense, the less effective they become, because they are used for groups of patients beyondthe initial indications for which they were designed. This may not harm patients, and mayproduce marginal health benefits in terms of quality of life. However, this is certainly costlygiven the marginal benefit.

3. From a static to a dynamic perspective of health and long-term care expenditures

3.1 The drivers of healthcare costs

Macroeconometric studies have shed some light on the drivers of healthcare costs. Thesestudies have been conducted in various national settings (Newhouse, 1992; L’Horty, Quinetand Rupprecht, 1997) and even extended to international datasets (Gerdtham and Jönsson,1992). In spite of some technical limitations,3 these studies find ageing to have a limitedimpact on the total increase in healthcare expenditure, explaining a couple of percentagepoints. The increase in national income plays a key role, together with price effects whileinstitutional variables describing healthcare systems play a limited role (GP Gatekeepers,global budgets, etc.). However, these econometric studies reach some limits as 50 per cent ofthe total increase in expenditure remains to be identified. This large residual, which is in somesense very similar to the residual found in prior macroeconomic studies of economic growth,has been attributed by health economists to technology. Until recently, there were very few

3 Modern econometrics shows that this creates the case for ‘‘unit roots’’ and that usual tests will be biased.



empirical studies, which would provide microeconomic foundations for the macroeconomicperspective. However, recent U.S. studies (Cutler, McClellan and Newhouse, 2000) togetherwith more recent work from the OECD (OECD, 2003) tend to confirm this hypothesis.

3.2 Ageing and health expenditure

At first sight, health and ageing seem to be highly interrelated. Recent evidence fromindustrialized countries shows health expenditure for people aged 65 and over is three to fivetimes higher than for people aged 0–64. Older persons require more health services, whateverthe country. Therefore ageing should have a significant impact on health expenditure. This isillustrated by the age profiles of health expenditure found in various countries.

Christian health funds 1997 Socialist health funds, 1994

0

5

10

15

20

25

30

35

0–14 15–44 45–64 65–69 70+

1998, Total public 1997, except drugs and long-term care

JAPAN: National medical expenditure estimates per capita by age group

(as a percentage of GDP per capita)

0

5

10

15

20

25

30

35

BELGIUM: Public health expenditure, except drugs, per capita by age group(as a percentage of GDP per capita)

0–45–9

10–1415–19

20–2425–29

30–3435–39

40–4445–49

50–5455–59

60–6465–69

70–7475–79

80–8485–89

90–9495�

Figure 1a: Health expenditure profiles by age groups


260 JACOBZONE

This ‘‘age profile’’should be considered with caution. These data are often the results ofempirical research and involve a number of assumptions, particularly regarding the use ofhospital services. In addition, most of these profiles refer to the use of publicly-financedservices only. Household surveys are needed to estimate the use of private services, which isdifficult to estimate. These profiles have often been developed for the purpose of projections,or for the purpose of generational accounting (European Commission, 1999; Cutler andSheiner, 2000; McClellan and Skinner, 1997). Details on how the age profiles have beenobtained are described in Table 2.

In countries where the breakdown is available, women consume more than men in themiddle age groups, due to pregnancy (see, for example, the New Zealand profile as part ofFigure 4). In addition, health expenditure for the youngest age groups is also higher due toneonatal care, but this can only be observed when very desegregated data are available.

In addition, for a number of countries, the data allows for comparing the distribution oftotal, public and private expenditure by age. In most cases, the relative share of publicexpenditure is higher for the higher age groups. In Australia, the two profiles are ratherparallel. In Canada, the public share is very high. In the United States, the public share is lowfor the younger age groups, as this includes only Medicaid. It is higher for the older age groupsand has been relatively constant between 1977 and 1987. In Italy public health expendituresare comparatively lower for the middle-age groups and higher for the elderly.

For all these countries, long-term care is included to a minimal extent. The data for Japanshow the difference, if long-term care and drugs are subtracted. However, the boundarybetween acute and long-term care is difficult to draw in Japan, as hospitals also provide long-term care de facto. The lack of a clear boundary blurs the analysis. It is difficult to disentanglein these data what pertains to healthcare costs and what pertains to long-term care costs inmost countries. However, health and long-term care expenditures have different determi-nants, which we need to consider separately in a following section.

Traditionally, these health expenditure profiles are combined with population projec-tions, in order to obtain a projection of future health expenditures (Schneider and Guralnik,

0

5

10

15

20

25

30

35

Births 0–4 5–15 16–44 45–64 65–74 75–84 85+

ENGLAND: Expenditure on hospital and community health services per capita by age

(1994, as a percentage of GDP per capita)

group

Figure 1a: (continued)



1990). Numerous examples of such projections exist in a number of countries, as they aretechnically fairly simple. This allows an illustration of the future impact of ageing on healthexpenditures. These projections are not to be considered as ‘‘real numbers’’ for the future, butrather as a snapshot of the simple effects of demography, a superficial view of healthexpenditure. In fact, a deeper understanding of the underlying causes shows the limits of sucha mechanical exercise.

0

5

10

15

20

25

30

35

Total 1977

Public 1977

Total 1987

Public 1987

20–64 years

3.3. Beyond the naı̈ve fallacy

The ‘‘doomsday prophecy’’, which presents ageing as a threat to social and healthsystems, is in fact a naı̈ve fallacy, which results from a lack of understanding of the real impactof ageing. Demography, by itself, is a secondary factor in the overall increase of healthexpenditure. The key factor is the use of technology and the relative prices for medical inputs,combined with the intensity of care at older ages. The extent to which long-term care isprovided in formal settings also plays a role.

0–140

5

10

15

20

25

30

35

Total 1994

Total 1980

Public 1994

Public 1980

15–44 45–64 �65

CANADA: Total and public health expenditure per capita (1980–94)


0

5

10

15

20

25

30

35

Total

0–5 6–13 14–24 25–34 35–44 45–54 55–64 65–74 75–84 85�

Private(1997)

Public(1999)

ITALY: Total, public and private estimates of health expenditure per capita


Figure 1b: (continued)



In spite of the strong cross-sectional relationship between age and health observed inindividual data, there is no link at the aggregate level between the share of the population aged65 and over and the relative level of health expenditure as a share of GDP (Figure 2). Thisillustrates the fact that there is no ‘‘demographic imperative’’ (Scherer, 1996). Nothing isreally imposed in social systems: ageing is embodied in health and welfare systems througheconomic and social incentives. The result reflects these incentives and the interaction ofsocial conditions and economic possibilities more than pure demography itself. Sweden, thecountry with the highest share of the population aged 65 and over, spends relatively more, butnot more than the United States, which has a much younger population. Japan spendsrelatively less than other countries and has a slightly smaller share of its population aged 65and over compared with European countries. Sweden has a much greater proportion of itspopulation aged 65 and over, and is still able to provide adequate coverage for health and long-term care. This offers a very positive and optimistic message, as this did not lead the Swedisheconomy or welfare system to collapse.

These descriptive observations are consistent with more robust estimates: Gruber andWise (2001) find no impact of the elderly population coefficient on health spending in GDP.Earlier results by Getzen (1992) show that ageing would only be reflected in healthexpenditures when not taking into account the implicit link between ageing and rising percapita income. An understanding of the complex long-term interrelationship between health,long-term care and ageing requires reliance on supply-side and institutional characteristics ofsocial and health systems. Ageing, per se, is not the key problem, but the extent to whichtechnology is being used at older ages, and whether it is cost-effective.

SPA

SWE

NOR

UK

DK

AUTGER

FRA

JAP

NL

USA

CAN

AUSNZ

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2

4

6

8

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16

11 12 13 14 15 16 17 18Share of population aged 65 and over

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Figure 2: Health and welfare expenditure versus the share of the population aged 65 and over(mid-1990s)


264 JACOBZONE

3.4 The impact of the cost of dying

A second factor which mitigates the impact of ageing, is the concentration of healthcarecosts at the end of life. Failure to take this into account may lead to a significant overestimateof future projections of health expenditure (Fuchs, 1984; Breyer, 1999). Health expenditurefor older age groups are higher simply because a larger share of those groups is likely to die,and therefore to experience catastrophic health expenditure. This can be illustrated in avariety of ways, with data stemming from different countries (Table 3). Although the findingsmay differ qualitatively from country to country, the general impression prevails that in everycountry costs are accumulated at the end of life. The earliest results on this subject wereproduced in the United States in the early 1970s, based on data from the mid-1960s (Timmerand Kovar, 1971). As early as 1984, Lubitz and Prihoda had shown that the 5.9 per cent ofMedicare accounted for 27.9 per cent of Medicare reimbursements, and that figure remainedbroadly constant until 1988 (Lubitz and Riley, 1993). In Manitoba, the share of total healthexpenditure on decedents was approximately 11 per cent.

More refined results show that the detailed timing to death is important, and that costsmight be even higher in the months preceding death. In addition, expenditures begin toincrease slowly in the years prior to death (Lagergren and Batljan, 1999). However, therelative ratio differs from country to country, and across age groups. For example, Danish datashow that the relative expenditures for decedents are not as high, relative to the correspondingexpenditures for survivors (25 to 50 per cent higher). In addition, in several countries,expenditure for decedents in the middle-older age groups (60–75) tends to be higher thanexpenditure on the oldest decedents (over 80). Expenditures were also higher for individualsless impaired in terms of ADL/IADL (Scitovsky, 1988). This shows the role of implicitprioritization mechanisms in the allocation of healthcare resources. Several studies confirmthat younger decedents tend to experience higher medical expenditures, while olderdecedents experience lower medical expenditures but higher nursing home, home care andsupportive care expenditures (Lubitz et al., 2001).

This has significant policy implications. As industrialized societies are ageing further,mortality rates in the older age groups will continue to fall. This will reduce the further growthof health expenditure and mitigate the impact of the demographic profile (Cutler and Sheiner,1998; Zweifel, 1999). However, cohorts and generation effects also need to be considered in adynamic perspective.

3.5 Cohorts and generation effects in a dynamic perspective

The age–expenditure profiles in cross-section refer, for most countries, to one single yearonly. For a few additional countries, data available over time show the shift in the age–expenditure profile. In Finland, data was available for 1983 and 1990. The shift seems to berelatively homogenous across age groups. Finland is a country with a fairly old population,and has been able to contain the growth in its healthcare expenditure. Canada is even morestriking as health care expenditure per capita increased only very slightly between 1980 and1985, and then remained almost flat between 1985, 1990 and 1994, which corresponds to anera of cost-containment in the Canadian system. In France,4 the shift shows an increase in

4 Similar trends were observed between 1960 and 1970 although they are less pronounced (Mizrahi MizrahiSandier 1974). However, the expenditure data were not fully comparable from the 1960 survey.



Table 2:A review of existing studies on the cost of dying

Country Country/study Sources of data Comments

Canada/Manitoba

Roos et al. (1987) Manitoba-linked database(approx. 1 million persons)

Number of bed days three to five times higher for deceasedcompared to survivors in similar age groups.

Canada/Manitoba

Mustard C., Kaufert,Kozyrskyj and Mayer (1998)

Manitoba-linked database,expenditure on physicianand hospitals excludingdrugs.

Expenditure on decedents were 15 times higher thanaverage publicly-financed expenditure (which excludesdrugs), in Manitoba. Expenditure in the last year of liferepresented 21 per cent of lifetime expenditure, and 11 percent of total current expenditure.

Denmark Madsen, Serup, Hansen,Kragstrup J. and Kristiansen(2000a, b, c)

19.2 per cent sample ofDanish population for1994–1995, with around24,000 deaths over the twoyears.

The costs are increasing as a function of distance to deathexpressed in days. Sixty-two per cent of the costs occur inthe last three months. The increase is more pronounced foryounger age groups than for the very old (over 80). Use ofresources more intensive for men. Outpatient expenditurewere 50 per cent higher in the middle age groups forsurvivors, and 20 per cent higher in the older age groupsfor men, and 10 to 30 per cent higher for women. Inpatientexpenditures were ten times higher in the middle agegroups.

Germany Busse (1996)Busse (1999)

Data from a large sicknessfund, 1989–1995, 70,000individuals

In a representative sample of members of a large sicknessfund in Germany, in every age group above 65 per capitautilization of hospital days for decedents were betweenfour and 12 times higher than for survivors. There is a peakin terms of hospital days for decedents between 55 and 64.

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Sweden Lagergren and Batljan(2000)

Skane region, MalmöhusCounty Council

Per capita costs of deceased: 25 per cent of GDP percapita for in-patient care, and 8 per cent of GDP per capitafor out-patient care.Per capita costs of survivors: 1.9 per cent of GDP percapita for in-patient care, and 1.4 per cent of GDP percapita for out-patient care.

Switzerland Zweifel (1999) Two Swiss sickness funds,700 individuals for ten years,and 360 individuals for twoyears.

Healthcare expenditure in last quarter of life two to threetimes higher than in reference period. Higher withindividuals with supplemental insurance. Expenditure inthe last two years of life does not depend on age, onelifetime is controlled for.

United States Scitovsky (1988) Small sample Palo AltoMedical Center (260–500indiv.)California white population.

Medical expenditure higher for younger decedents (65–79), higher if less functionally impaired (ADL/IADL).Higher nursing home/home care. Recorded totalexpenditure, (including LTC) was around 12 to 15 timeshigher than average national expenditure in the U.S. thatyear.

United States Riley and Lubitz (1993) Longitudinal fine of 5 percent of population aged 65+in the U.S. (Medicarebeneficiaries). Data for 1976,1980, 1985, 1988

Around 30 per cent of Medicare expenditure for thepopulation aged 65 + is accounted for by people in theirlast year of life. Expenditure per decedent was between 6.5and seven times higher than for survivors. Expenditure fordecedents included a higher share of impatient care. Theseratio were higher for the younger elderly than for theoldest old. Relative expenditure on decedents peaked at70–74.

Source: published materials and communications by the authors. See references in the bibliography.

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expenditure related to birth, and also an increasing shift for the oldest age groups, even if thedata displayed are limited to medical expenditure and exclude hospitals. In addition,expenditure peaks for the 80–89 age groups and is slightly lower for the very oldest. Theseshifts are due to more intensive follow-up for births and to the general medicalization of life atolder ages. In addition, expenditures are lower for the very oldest as long-term careexpenditure is not included. Germany shows a clear shift, more pronounced in the older ages.Germany has experienced a rapid growth in its health expenditures during this period whichbegins just after the first oil shock. Finally, the United States have experienced the samephenomenon observed with French and German data, but observed over a longer time period,and an even more pronounced shift. The U.S. data span from 1963 until 1987 onwards (Cutlerand Meara, 1999, 2000). The steepness of the age profile has increased over time. A more

35

30

25

20

15

10

5

0

35302520151050

0–14 15–44 45–64 65�

CANADA: Total health expenditure per capita by age group(as percentage of GDP per capita)

FRANCE: Medical expenditure per capita by age group(as percentage of GDP per capita)

Source: National health expenditure in Canada (Policy and consultation branch, Health canada). January 1996.

�22–4

5–910–14

15–1920–29

30–3940–49

50–5960–69

70–7980–89

90�

35

30

25

20

15

10

5

0

35

30

25

20

15

10

5

00–14 15–64 65–74 75� 0–19 20–59 60–69 70–79 80�

FINLAND: Total health expenditure per capita by age group(as percentage of GDP per capita)

GERMANY: Public health expenditure by thestatuatory health insurance funds* per capita by age group

(as percentage of GDP per capita)

1991 1980 1970Source: National health surveys, Mizrahi Mizrahi, 1988, 1993, CREDEES. This excludes hospitalization.

Source: Hakkinen 1988, Hakkinen et al. 1994. *West Germany onlySource: Deutscher Bundestag-13. Whalperiode (October, 1998).

1974

1992

1983

1990

1980

1985

1990

1994

35

30

25

20

15

10

5

0

70

60

50

40

30

20

10

0�11–4

5–1415–24

25–3435–44

45–5455–64

65–7475–84

85� Under 65 65–74 75–84 85�

1987

1963

1970

1977

1987

1995

UNITED STATES: Health cxpenditureper capita by age groups


UNITED STATES: Personal health careexpenditures per capita by age group


Source: The medical costs of the young and old: a forty year perspective(David Cutler and Ellen Meara, June 1997).

Source: Medical expenditures for major diseases, 1995 (Hodgson Cohen 1999).The methodology differs from Cutler Meara, and there are some differences for the highest age groups.

Figure 3: Health expenditure profiles over time


268 JACOBZONE

recent study allows a comparison between 1995 and 1987 but with a different age breakdown(Hodgson and Cohen, 1999), and confirms the earlier results. More detailed U.S. studies haveshown that most of the increase in these expenditures in older ages is due to more intensive useof technology (Fuchs, 1998). For example, the number of older persons receiving proceduressuch as angioplasty, coronary artery bypass graft, carotid endarterectomy, hip replacementhas been multiplied by three to ten for the oldest age groups in the U.S. between 1987 and 1995(Lubitz et al., 2001). The impact of ageing is in fact mediated through the use of moreintensive treatments and more expensive technologies.

4. Accounting for long-term care and disability

The other dimension of health-related expenditure is long-term care. Long-term careplays a predominant role towards the end of life and needs to be considered separately fromacute care (Spillman and Lubitz, 2000). For example, the bulk of the increase in healthexpenditure per person by age group in Australia in 1994, was, in fact, related to nursing-home care. In New Zealand also, the increase in expenditure above the age of 65 is clearlyrelated to disability support. In the Netherlands, the age profile is much steeper than for theother countries, and culminates at a much higher level, which can only be due to the impact oflong-term care (Meerding et al., 1998). This is also the case in Sweden where expenditure onlong-term care per capita amounts to 100 per cent of GDP per capita. This is due to the role offormally provided long-term care, which is more important in these two countries than in therest of the countries studied in this article.

4540353025201510

50

4540353025201510

500–14

15–2425–34

35–4445–54

55–6465–74

75� 0 1–4 5–14 15–24 24–44 45–64 65–74 75–84 85�

Total except nursing homes Nursing Homes Male Total Female Total Male without disability Female without disability

AUSTRALIA: Health expenditure per personby age group (1993–94)


NEW ZEALAND: Total health care expenditure,with a breakdown of disability support (1998)


Source: Goss et al. 1994. Source: Ministry of health, and Treasury.

140130120110100

908070605040302010

0

140

120

100

80

60

40

20

00–64 65–69 70–74 75–79 80–84 85–89 90� 0 0–5

5–9

10–1415–19

20–24

25–2930–34

35–39

40–4445–49

50–54

55–5960–64

65–69

70–7475–79

80–84

85–8990–94

95�Note *Health care expenditure are in black (Skane county ), and long-term care expenditure in grey.Source: Will there be a helping hand? (Lagergren Batljan, 2000).

Source: Demographic and epidemiological determinants of healthcare costs in Netherlands:cost of illness study(Willem Jan Meerding, Luc Bonneux, Johan Polder, Marc A Koopmanschap, Paul J van Maas).

SWEDEN: Health and long-term care expenditure per capita(population of Skäne, 1997, as a percentage of GDP per capita)

NETHERLANDS: Health and long-term care costsper capita by age group (1994)


Figure 4: Health and long-term care expenditure profiles



4.1 The role of trends in health and disability

The role of trends in health and disability has been explored in more detail in a previousstudy (Jacobzone, 2000). Future trends in long-term care expenditure are likely to beinfluenced by trends in health and disability, and also by the relative availability of formalcare, and the relative price of care. The availability of informal care is certainly being pressedby social changes and an increased participation in paid labour markets (Jensen andJacobzone, 2000). In addition, the strong preference for independent living will be reinforcedby the increased financial autonomy of older persons (OECD, 2000).

The role of trends in disability has been largely debated in the literature, particularlysince trends in disability in the United States have been continuously falling over the past 17years (Manton and Gu, 2001). The impact of trends in disability on future long-term careexpenditure is certain, but needs to be formulated with some caution (Jacobzone, 2000). Thereductions in disability have occurred mostly in Japan, France, Germany and the UnitedStates, and to a more moderate extent in Canada and Sweden. The Netherlands and the UnitedKingdom did not exhibit any significant decline from the data that were available. The case ofAustralia is specific and raised issues about comparability of the data over time as far as themost recent survey is concerned.

Our results show that trends in disability have a clear and significant impact on the futurenumbers of disabled older persons. However, when translating these results into projections offuture long-term care expenditure, a more nuanced picture emerges. The trends inexpenditure are more driven by institutionalization rates as the bulk of resources are stillabsorbed by care in institutions. The savings generated by ‘‘better health’’ are therefore not asimportant as initially envisaged. In any case, long-term care expenditure remains modest inmany countries, in the range of 1 or 2 per cent of GDP, except for the Nordic countries.Therefore, even if the saving is not as great, the threat in terms of the sustainability of publicfinances remains limited.

4.2 The link between disability and health expenditure

Do these results also apply to health policy and do trends in disability have an impact onfuture health expenditure (Jacobzone, 2000)? Do trends in disability reflect the performanceof various healthcare systems? For example, trends do not exist in the U.K. and are lesspronounced in some countries which have experienced difficulties with waiting times and theavailability of certain medical technologies. This is still a matter of conjecture and futureresearch.

However, a number of analytical studies have been undertaken in the United States tounderstand the causes of reductions in disability. Research on long-term trends shows that asignificant reduction occurred in the prevalence of respiratory conditions, ischemic heartdisease and joint back problem, due to improved living conditions (Costa, 1998). Research onmore recent trends has shown the impact of education and related socio-economic factors(Freedman and Martin, 1999). These general trends play a role, but are not amenable to healthpolicy. However, the most detailed recent work (Freedman and Martin, 2000; McClellan andYan, 2000) finds increasing morbidity among older persons, but this increase in theprevalence of disease is accompanied by less disability: older persons are ‘‘sicker’’ but lessdisabled. The diseases are medicalized to an increased extent, but they allow patients a greaterquality of life. This is, in a sense, one of the achievements of modern medicine: not toeliminate health risks, but to mitigate their impact, and transform them into chronic


270 JACOBZONE

conditions which are manageable through treatment and medical follow-up. In turn, thismeans that declines in disability may, in fact, be very costly to achieve in terms of healthcare.

5. Back to technology and away from the Pasteurian paradigm

That drives us back to the technology factor and to a better understanding of the true roleof healthcare systems. Modern healthcare systems in many industrialized countries have beenbuilt upon the Pasteurian paradigm, of risk, infectious diseases and a protection againstsudden catastrophic expenditure. However, modern diseases are highly likely to be present inold age, and are, for the most part, non-communicable. They often lead to chronic treatmentand significant expenditures until the end of life. In a sense, healthcare systems are nowincreasingly buying quality of life at older ages, and to some extent extension of life at theoldest ages, rather than preventing mortality in younger age. The latter function is stillperformed, but it is no longer the main function in terms of the relative share of current andfuture expenditures.

Technology is the key factor. The supply aspects of medical R&D, and the fact thatmedical R&D is geared towards finding more expensive medical treatments and not alwaysthe least costly ones are the key policy challenges. The new advances of medicine now focuson increasing quality of life at higher ages, with in a sense ‘‘public’’ and ‘‘private’’ benefits,and are funded through a varying mix of public and private arrangements. If the pressures interms of technology in the future cannot be managed, the mix of public and private benefitscould be affected in terms of the relative availability of some of these technologies, and of theway that funding for less effective treatment is shared between the public and private purse.

5.1 Understanding the puzzle of healthy ageing

In understanding the puzzle of health ageing, one needs to distinguish between disability,morbidity and quality of life. International comparisons usually focus on ‘‘public’’ healthindicators, which do not reflect ‘‘private’’ quality of life. Indicators such as life expectancy,cause of death, or even prevalence of disease, do not reflect ‘‘self-perceived’’ health, ordisability. Although analysts are now fully aware of the importance of the topic, the technicaldifficulties with data are still often an important barrier in establishing commonly acceptedinternational indicators (Gudex and Lafortune, 2000). In addition, further longitudinal dataon the health of older persons is absolutely critical in obtaining a full understanding of thecurrent trends across countries. In most countries outside the United States, the availableevidence remains limited.

The other important policy goal is to monitor the supply of technologies and theirdiffusion in healthcare systems. Healthcare systems need to avoid excessive restraints, whichmay harm patients, but they should also be aware of the limited marginal returns on some ofthe technologies. Therefore, there is a very important role for health technology assessment infiltering the flow of new technologies coming onto the market. Technologies need to bescreened, and only those yielding significant healthcare improvements should be fully fundedfrom the public purse. In addition, there is a responsibility for the larger countries to take stepsto influence upstream the development of medical technology in a way that favours thedevelopment of more cost-effective technology. As of today the underlying incentives do notexist. Also, the distribution of research across disease areas should reflect the burden ofdisease, in addition to those age-related and chronic diseases that now constitute a larger shareof total health expenditures. Private payers will also have to address the challenge and develop



their own tools, either similar or complementary to those of the public systems as they will befaced with the residual demand from patients who want to receive these technologies.

6. Conclusion: maintaining the fragile equilibrium of healthcare systems

Healthcare systems are likely to remain in a fragile economic equilibrium for the nextfew decades. There will be constant pressure in terms of public policy, as economic growth inmost Western countries remains modest. Therefore, the need for priority setting andevidenced-based medical decision-making will remain high on the agenda. The policydilemma can then only be addressed through an increased productivity of healthcare systems,searching out value for money in improving quality of life.

A purely economic discussion of healthcare systems also faces some limits. Normative,but also positive, answers need to be found, building on social and political values. Policymakers have to acknowledge the role of ethics and the critical importance of reaching a socialconsensus on the amount of resources needed to be devoted to healthcare in a given society.Healthcare systems are usually linked with levels of social consensus, as economists andhealth economists themselves exhibit various degrees of consensus on a number of key healtheconomics and health policy issues (Fuchs, Krueger and Poterba, 1997). These levels of socialconsensus differ across countries, and they are therefore not likely to bring the same answersto the same questions. The countries which are fairly heterogeneous are likely to see a morelimited role for public interventions, while other countries which are much morehomogeneous are likely to require more extensive public involvement. The public, andimplicitly the private, choices that will have to be made will ultimately reflect these variouslevels of social consensus, in addition to the various economic and institutional incentivesthemselves.

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Ageing and the Challenges of New Technologies: Can OECD Social and Healthcare Systems Provide for the Future?1. Introduction2. Background2.1 The policy implications of ageing2.2 The diffusion of new technologies

3. From a static to a dynamic perspective of health and long-term care expenditures3.1 The drivers of healthcare costs3.2 Ageing and health expenditure3.3. Beyond the naïve fallacy3.4 The impact of the cost of dying3.5 Cohorts and generation effects in a dynamic perspective

4. Accounting for long-term care and disability4.1 The role of trends in health and disability4.2 The link between disability and health expenditure

5. Back to technology and away from the Pasteurian paradigm5.1 Understanding the puzzle of healthy ageing

6. Conclusion: maintaining the fragile equilibrium of healthcare systemsREFERENCES

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Ageing and the Challenges of New Technologies: Can OECD ... · Ageing and the Challenges of New Technologies: Can OECD Social and Healthcare Systems Provide for the Future? by Stephane