Comisión Nacional de Seguros y Fianzas Seminario Internacional · Comisión Nacional de Seguros y Fianzas Seminario Internacional Mexico D.F. 10 – 11 Noviembre 2003 Howard J. Bolnick,

Healthcare and Population Aging

Comisión Nacional de Seguros y FianzasSeminario Internacional

Mexico D.F.10 – 11 Noviembre 2003

Howard J. Bolnick, FSA, MAAA, HonFIAPresidente, Sección de Salud, AAI


• The Present An International Comparison – Mexico’s Healthcare Attainment

• The Future Aging Population and Other Key Healthcare Cost Drivers

• Policy Options for Mexico Is a Mixed Public – Private Healthcare Financing System in Mexico’s Future?

Healthcare Spending and Wealth

Wealth vs. Health Care Spending, 2000

0

2

4

6

8

10

12

14

$0 $5,000 $10,000 $15,000 $20,000 $25,000 $30,000 $35,000 $40,000 $45,000 $50,000

GDP Per Capita ($US PPP)

% G

DP

Spen

d on

Hea

lth C

are

• Healthcare spending increases with national wealth

• Healthcare spending increases with personal wealth

• Mexico - $8,944 US GDP per capita- Healthcare = 5.4% of GDP

• Mexico’s spending in less than 5.7% predicted by trend line

Health vs. Healthcare Spending

• Population health (HALE) improves significantly with additional spending until spending reaches about $1000 US (PPP)

• Mexico - $483 US healthcare spending- 63.8 HALE

• Mexico has better than expected HALE for its current healthcare spending

Health vs. Spending, 2000

20

30

40

50

60

70

80

$0 $1,000 $2,000 $3,000 $4,000 $5,000

Total Health Care Spending ($US PPP)

HA

LE (Y

ears

)

Public vs. Private Healthcare Spending

Healthcare Spending by Source

$224

$239

$20

$483

$517

$0

$200

$400

$600

$800

$1,000

$1,200

$US

(PPP

)

Public

OOPInsurance

Growth Potential to World-Class HALE

• Mexico’s public spending of 46.4% of total is very low by international standards

• Mexico’s level of private healthcare insurance is also very low

• Healthcare spending will need to more than double to reach world-class HALE of 70 years

• Will this large increase be in public or private spending?

Mexico – Intermediate Term Predictions (Next 10 to 15 years)

• Healthcare spending will increase faster than GDP growth

• Growth in demand will come mainly from growing middle income population

• As spending approaches $1000 US per person, HALE will approach 70.0 years

• Public sector spending will be hard-pressed to keep up with demand creating opportunity for private sector health insurance





Life Expectancy is Expanding

Historical Life Expectancy (U.S.A.)

010203040

50607080

1900-02 1950 1960 1970 1980 1991

At Birth

At 65

At 75At 85

Expanding life expectancy is a worldwide phenomenon

Creating Larger Elderly Populations

65+ Population Growth, 2000 - 2050

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

120.0%

140.0%

160.0%

180.0%

200.0%

Luxembo

urgJa

panDen

markSwed

en Italy

Belgium

German

yFinlan

d

United K

ingdomGree

ceSpainFran

ceAustr

iaPortu

galNeth

erlan

dsUnite

d States

Canad

aAustr

alia

Irelan

d

Mexico’s 65+ is projected to explode over this period from 5.2 million in 2000 to 35.0 million in 2050

Healthcare Costs Increase with Age

Source: EU Economic Policy Committee 2001

Children Working Age Adults Elderly

Causing Potential For Large Increases in Projected Spending

Source: OEDC 2001 (Dang, et. al.)

Public Long Term Care Spending as % of GDP

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

Belgium

DenmarkFran

ceIre

land

Italy

The Neth

erlan

dAustr

iaFinlan

dSwed

en U.K.

EU Ave

rage

U.S.Can

ada

Australi

aJa

pan

20002050

Public Medical Care Spending as % of GDP

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

Belgium

Denmark

German

yGree

ceSpainFran

ceIre

land

Italy

The Neth

erlan

dAustr

iaPortu

galFinlan

dSwed

en U.K.

EU Ave

rage

U.S.Can

ada

Australi

aJa

pan

2000

2050

Projections based on demographic projections and current age-related healthcare costs

Range: 2% - 5%, EU average = 2.2%

Is a healthcare cost crisis unavoidable?

Is demography destiny?

Many Historical 65+ Population Increases Are Quite Large

Historical Population Increase Age 65+

0%

50%

100%

150%

200%

250%

300%

350%

Irelan

dAustr

ia

United K

ingdom

Czech

Repu

blicBelg

iumDen

markFran

ceSwed

enNorw

ayLuxe

mbourg

Switzer

land

United S

tatesNeth

erlan

dsNew

Zeala

ndSlova

kiaGerm

any

Iceland

Finland

SpainGree

ceAustr

alia

Poland

Canad

aTurke

yJa

panKorea

Mexico’s 65+ population grew 189% from 1960 to 2000

With No Strong Aging–Cost Relationship

Correlation r = .251, which is quite low

Aging Population vs. Health Care Spending, 1960 -1998

0%

50%

100%

150%

200%

250%

300%

350%

400%

0% 50% 100% 150% 200% 250% 300%

% Growth in Population 65+

% G

row

th in

Hea

lth C

are

Spen

ding

Further Historical Evidence

Cause of Growth inU.S. Medical Care Spending

1960 – 1993

Age/sex mix 7.2%Disposable income 17.6% Insurance coverage 5.3%Technology-inducing 69.9%

Source: Peden and Freeland, Health Affairs, Summer 1995

There is no evidence for aging as a significant driver of healthcare cost

increases …..

So, what’s going on here?

Healthcare Cost Projections

Cost is an interrelated function of:

!Life Expectancy

!Biological Morbidity

!Scope, Intensity and Cost of Services(Economic Morbidity)

Life Expectancy: Alternative Futures

Natural AgingLonger life expectancy with

rectangularization of survival curves" Fixed maximum life span at 115

" Life expectancy increasing to 85

" 95% of deaths between 77 and 93

Delayed DeathLonger life expectancy without limits" No fixed maximum life span

" No limit on improvements in life expectancy

Source: Fries, Milbank Quarterly, 1983

Biological Morbidity: Alternative Futures

Compression of morbidity 1

Elderly live longer and healthier lives– Healthy Lifestyle and early non-medical interventions postpone

onset of clinical morbidity– Onset of chronic conditions of aging are delayed more rapidly

than life expectancy increases

Expansion of morbidity 2

Elderly live longer, but sicker lives– Longer life expectancy and Unchanged Lifestyle does not

postpone onset of chronic conditions

1 Fries, James F., “Aging, Natural Death, and the Compression of Morbidity”, NEJM, July 17, 1980.2 Brody, Jacob A., “Prospects for an Aging Population”, Nature, June 6, 1985

Economic Morbidity: Alternative Futures

Compression of CareLess and/or lower cost medical care and frailty care

"Medical technology and De-institutionalized frailty care become Cost-Reducing

"Ethics of Social Solidarity and Death with Dignity allow healthcare systems to become Increasingly Constrained

Expansion of CareMore and/or higher cost medical care and frailty care

"Medical technology and Institutionalized frailty care remains Cost-Increasing

"Ethics of Individual Rights and Conquering Death force healthcare systems to become Increasingly Unconstrained

Changes in Life Expectancy, Biological Morbidity, and Economic Morbidity

Life

Exp

ecta

ncy

Onset of Disease

Onset of Care

Expanded Life Expectancy (Natural Aging or Delayed Death)

Expansion of

Morbidity

Equilibrium of Morbidity

Hea

lthy

Expansion of Care

Compression of Care

Compression of Morbidity

Unh

ealth

yToday

Equilibrium of Care



Life Expectancy

Economic Morbidity

Biological Morbidity

Future Healthcare Cost Scenarios

The Good …. Favorable Trends Develop"Life Expectancy – Natural Aging

• Compression of mortality near end of natural life"Biological Morbidity – Compression of

Morbidity• Elderly live additional years in good health

"Economic Morbidity – Compression of Care• Effective, inexpensive technology and favorable

healthcare ethics

Future cost Increases: lower than historical growth


The Bad …. Continuing Today’s Trends

"Life Expectancy – Natural Aging• Compression of mortality near end of natural life

"Biological Morbidity – Equilibrium of morbidity• Elderly live additional years, years with chronic

conditions increases about the same "Economic Morbidity – Equilibrium of Care

• Technology continues to expand scope of expensive diagnostic and palliative care.

• End of life debility and illness often treated with aggressive medical interventions,

Future cost Increases: continuation of historical growth


The Ugly …. Unfavorable Trends Accelerate"Life Expectancy – Delayed Death

• Continued mortality improvement without limit"Biological Morbidity - Expansion of morbidity

• Elderly live additional years often in poor health "Economic Morbidity – Expansion of Care

• Technology continues to rapidly expand the scope of expensive diagnostic and palliative care

• End of life debility and illness treated with increasingly aggressive medical interventions

Future cost Increases: higher than historical growth


Healthcare Spending 2050

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

2000

$U

S (P

PP)

Current 2000 World-Class HALE 2050 Range

GOOD

BAD

UGLY

Current

Growth

Key Drivers: Technology, Lifestyle, Ethics

Historical Growth Continues

Implications

" There is a healthcare cost “crisis”" Demography is not destiny - aging populationis

a causative factor, but not the major one" Life Expectancy

• Elderly are living longer " Biological Morbidity

• Elderly may be living healthier, mainly due to healthier lifestyles

" Economic Morbidity:• Future cost increases will be determined mainly by

factors that are external to healthcare systems• Medical technology will the major causative factor in

growth of healthcare spending• Ethics play a very important secondary role





Mexico’s Population is Aging

Mexico’s Work Force Is Growing

Mexico’s Health Care System Does Not Provide Universal Coverage

Income

Age

Poor

Near Poor

Moderate

Wealthy

Young Working Ages Retired

IMSS or ISSSTE (42.3%)

Uninsured (54.7%) or

SSA (.3%)

Private Insurance and IMSS (2.4%)

Evolutionary Option #1: EU Social Insurance System

Income

Age

Poor

Near Poor

Moderate

Wealthy


Public Health Insurance

Public Health Insurance and Private Supplemental Insurance

Evolutionary Option #2: US Health Care System

Income

Age

Poor

Near Poor

Moderate

Wealthy


Private Insurance

Private Insurance or Uninsured

Public Insurance (Medicaid) or Uninsured

Public Insurance (Medicare) and Private Supplemental Insurance

Medicare and Medicaid

Mexico’s Challenges

• Mexico is committed to universal coverage• Prospects are for rapidly growing health care costs

– Increasing wealth – Rapidly growing formal workforce– Rapidly growing elderly populations

• IMSS and SSA not likely to be able to accommodate growth• Private health insurance will NOT be able to satisfy need for

the elderly and poor --- public sector is only solution for these groups

• Public sector is NOT likely to satisfy needs of the growing workforce --- private sector is likely to be only real solution for this group

How might these formidable challenges be accommodated?

Mexico’s Options

UniformControllableAchievedSocial Insurance System (EU Systems)

More Narrow RangeModerate Control Achievable

Complete Mixed Public-Private System (Mexico)

Narrowed RangeSome ControlNear Universal

Access Possible

Incomplete Mixed Public-Private System (US System)

Wide RangeUncontrolled to ManagedNot Possible

Private Voluntary Markets

QualityCostUniversal AccessStructural Option

Health Care System Goals

Mexican’s Best Option for the Future?

Income

Age

Poor

Near Poor

Moderate

Wealthy


IMSS, ISSSTE, SSA

Private Insurance and

Out-of-Pocket

Documents

Comisión Nacional de Seguros y Fianzas Seminario Internacional · Comisión Nacional de Seguros y Fianzas Seminario Internacional Mexico D.F. 10 – 11 Noviembre 2003 Howard J. Bolnick,