AGEING POPULATION AND THE FUTURE

OF HEALTH CARE PLANSAn international perspective

J. François OutrevilleUNCTADVisiting Professor SUFEAdjunct Professor HEC Montréal

AGEING POPULATION AND THE FUTURE OF HEALTH CARE PLANS

• Background information on health care systems

• The increasing role of private health plans• Challenges to come• Ageing revisited

Health care expenditure as % of GDPSource: OCDE Health Data 2005

A comparison between 1980 and 2003

0

2

4

6

8

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14

16

USA

Swiz

erla

nd

Ger

man

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Gre

ece

Fran

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Nor

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Bel

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Can

ada

Port

ugal

Swed

en

Aus

tral

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Ital

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Japa

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Hun

gary

Aus

tria

Kor

ea UK

Spai

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Tur

key

Cze

ch

Finl

and

Pola

nd

Mex

ico

The Growth of HCE today:examples

• Rapid Growth USA, Greece, Portugal, Korea, Turkey

• Stabilized Netherlands, UK, AustriaGermany, Canada

• No growth Sweden, Finland, Denmark

A linear relationship?

Health care expenditure:the size of public sectors

Source: OCDE Health Data 2006

Out of Pocket expenditure and Private Health insurance: No relationship

Source: OCDE Health Data 2004

Health Insurance systems: principles

• Bismarck’s principle

• Beveridge’s principle

• State budget

• Private insurers under state control

Health Insurance systems: Examples

Compulsory Free choice

Privateor

competitive

Netherlands

Switzerland

USA

« Opt-out » (Germany)

Publicor

monopolistic

Almost all european countries(Bismarck or Beveridge)

UN system and International Organizations

Increasing role of Private Insurance HCE as % GDPSource: OCDE Health Data 2004

0

2

4

6

8

10

12

14

16

Pays

Bas

Fran

ce

All

emag

ne

Can

ada

Suis

se

Irla

nde

Aus

tral

ie

Aut

rich

e

Esp

agne UK

Mex

ique

Finl

ande

Dan

emar

k

Port

ugal

Ital

ie

Japo

n

Hon

grie

Population covered by Private Insurance Source: OCDE Health Data 2004

0

10

20

30

40

50

60

70

80

90

100

Aus

tral

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Pays

Bas

Fran

ce

USA

Can

ada

Irla

nde

Suis

se

Aut

rich

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Dan

emar

k

All

emag

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Ital

ie

Port

ugal

Esp

agne UK

Finl

ande

Classification of Private Health Insurance Plans

• Primary coverage• Risks not covered by the public scheme

(supplementary insurance)• Complementary insurance• Access to private market (substitutable)

Private Health Insurance Examples

Substitutable Complementary Supplementary

Optional UK

Germany

Italy

Australia

France

Belgium

Switzerland

Canada

Netherlands

Compulsory Spain

Netherlands

The challenges• Health insurance schemes are being dragged into increasing

expenditure by demographic changes and improvements in medical treatment.

• A growing interest in the problem of the long-term survival of

public schemes is paralleled by a desire to arrive at an acceptable compromise between equity and efficiency, between meeting individual needs and controlling collective expenditure.

• The European social philosophy of each contributing according to his means is radically opposed to the individualistic North American arrangement whereby everyone takes out insurance according to his needs.

The problems

• Budget deficits

• Tax limits

• Cost of new medical treatments

• Ageing of the population

• Decreasing labor force

Several options are available• « Opt out » (Germany)

– Voluntary or compulsory

• Public scheme covers only catastrophic risks– Case of LTC (Netherlands and Germany)

• Higher and competitive premiums but subsidies for lower income– Case in Switzerland

• Covers only basic health treatments (Doctors & Hospitals)– Some treatments excluded (drugs in Canada)

• Open markets to free choice and free trade– Cultural barriers– Portability of insurance coverage

Satisfaction rate for public schemes is highSource: OCDE Health Data 2004

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80

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Aus

tria

Fran

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Bel

gium

Den

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Finl

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Net

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Swed

en UK

Ger

man

y

Spai

n

Can

ada

USA Ital

y

Port

ugal

Gre

ece

AGEING POPULATION AND THE FUTURE OF HEALTH CARE PLANS

• “The first and primary cause of this crisis is once again the ageing of the population…” (Longman, 1987)

Ageing of the population

When Bismarck devised the social security contract for Germany, the official pension age was 65 and life expectancy 45.

Keeping the same ratio, retirement age today should be at 98.

Old age estimated to be at 75 years in 1985, will be 82 years by 2040: an annual gain of 1.5 months

Ageing of population and health care expenditure

Ageing of population and health care expenditure

Source : S. Jacobzone (2003)Source : S. Jacobzone (2003)

Ageing and HCE: What is the relationship?

Hypotheses:• The probability of initiating a treatment episode is

independent of age.• Medical expenditure per treatment episode increases

with age.• Medical expenditure increases sharply with closeness to

death regardless of age.• Medical expenditure before death increases/decreases

with age?

References:

• Lubitz and Riley, New England J. of Medicine, 1993

• Zweifel, Felder and Meier, Health Economics, 1999

• Felder and Schmitt, J. Health Economics, 2000

• Hogan, Lunney, Gabel and Lynn, Health Affairs, 2001

• Levinsky et al., J. of American Medical Association, 2001

• Outreville, Geneva Papers on Risk and Insurance, 2001

• Seshamani and Gray, Applied Health Economics and Health Policy, 2003

• Seshamani and Gray, J. of Health Economics, 2004

• Outreville, Applied Health Economics and Health Policy, 2005

Empirical evidence

• UN health insurance plan• 15,000 insured persons• 2 periods 1996-1997 and 2000-2002

HEALTH CARE EXPENDITURE (HCE)

0

2,000

4,000

6,000

8,000

10,000

12,000

30-39 40-49 50-59 60-69 70-79 80-89 90-99

Nb InsuredHCE 2000-02

HCE in the two samples

0

2,000

4,000

6,000

8,000

10,000

12,000

30-39 40-49 50-59 60-69 70-79 80-89 90-99

HCE 1996-97HCE 2000-02

Hospital HCE in the 12 months preceding death

By class of age in CHF

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

30-39 40-49 50-59 60-69 70-79 80-89 90-99

Average cost

cost before death

HCE last four quarters of life

0

10

20

30

40

50

60

70

HC

E (

%)

4 3 2 1

Quarters to death

Swiss sampleUS Medicare

HCE before deathFrom one month to one year

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10

20

30

40

50

60

70

80

90

100

0-29 30-39 40-49 50-59 60-69 70-79 80-89 90-99

1 month3 months6 months12 months

HCE for survivors

0

2,000

4,000

6,000

8,000

10,000

12,000

30-39 40-49 50-59 60-69 70-79 80-89 90-99

HCE totalHCE Survivors

Ageing and HCE: What is increasing with age?

• Trends in medical expenditure are influenced by trends in disability and product innovation.

• Product innovation focus on increasing quality of life at higher ages.

• LTC expenditure before death increases with age

Alzheimer’s diseasePercentage of cases by age group

0

10

20

30

40

50

60

70

80

90

100

30-39 40-49 50-59 60-69 70-79 80-89 90-99

Rate

Cost of pharmaceuticals by age

0

200

400

600

800

1,000

1,200

1,400

30-39 40-49 50-59 60-69 70-79 80-89 90-99

On average from 13% to 16% of total HCE within 10 years

Nursing and Long-Term Care (LTC)

0

500

1,000

1,500

2,000

2,500

3,000

30-39 40-49 50-59 60-69 70-79 80-89 90-99

Average ExpenditureNb of Cases

Average number of days in an hospital has been reduced from 10 to 7 days within 10 years

AGEING AND THE FUTURE OF HEALTH CARE PLANS

• SUSTAINABILITY

– Individuals are living longer in good health.– People over 95 are on average in better state of health than

those over 85 (absence of chronic diseases).

Mortality and disability scenariosT= Total expected life

H= Healthy expected life

Source: E. Pitacco (2002)Source: E. Pitacco (2002)

The demand for LTC

Hypotheses Stable population Ageing population

Compression Demand decrease Demand stable

Equilibrium Demand stable Demand increase

Pandemic Demand increase Demand increase

Negative factors

• Medical expenditure per treatment episode increases with age.

• Trends in medical expenditure are influenced by trends in disability and product innovation.

• Product innovation focus on increasing quality of life at higher ages.

• The traditional family structure continue to change

Improving trends

• Declines in disability rates (-1% per year) even at older age (85+).

• Instrumental activities of daily living (IADLs) are easier to perform today than 20 years ago.

• Product innovation may change the trends

End of life HCE

0

10,000

20,000

30,000

40,000

50,000

60,000

30-39 40-49 50-59 60-69 70-79 80-89 90-99 100-109

HCE 2000-02

HCE 1996-97

?

Nursing and Long-Term Care

30-39 40-49 50-59 60-69 70-79 80-89 90-99 100-109

LTC 2002LTC ?

AGEING AND THE FUTURE OF HEALTH CARE PLANS

• SUSTAINABILITY– Individuals are living longer in good health

• EQUITY– Health Care or Good Health– Health Care or Long Term Care– Health Care or Terminal Care

• INNOVATION– Health Insurance or Life Insurance (terminal illness)– Traditional Insurance or Alternative Risk Transfer

AGEING POPULATION AND THE FUTURE OF HEALTH CARE PLANS

• “As people are living longer, the hope is that they will also live healthily.”