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Can we afford to live longer in better health?

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  • Ed Westerhout

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  • Frank Pellikaan
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    Abstract

    This document analyses the effects of ageing populations upon public finances. More specifically, it focuses on the implications of ageing for acute health care, long-term care, and public pension expenditure. It does so for 15 EU countries. �It pays particular attention to three novel insights: (i) a large part of health care spending relates to time to death rather than to age: (ii) life expectancy may increase much faster than current demographic projections suggest, and (iii) the average health status may continue to improve in the future. It adopts a generational accounting model that incorporates health care costs during the last years of life, decomposed into an acute health care component and a long-term care component. The projections show that gains in life expectancy increase age-related expenditure; better health has the opposite effect. Combined, these trends reduce health care expenditure and increase pension expenditure. Their joint effect upon public finance is rather modest, however. Hence, the assessment of public finances in most EU15 countries does not change: even if a faster increase in life expectancy should combine with an improvement in health, current fiscal and social security institutions are unsustainable.

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    Bibliographic Info

    Paper provided by CPB Netherlands Bureau for Economic Policy Analysis in its series CPB Document with number 85.

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    Date of creation: Jun 2005
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    Handle: RePEc:cpb:docmnt:85

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    1. David M. Cutler & Louise Sheiner, 1999. "Demographics and medical care spending: standard and non-standard effects," Finance and Economics Discussion Series 1999-20, Board of Governors of the Federal Reserve System (U.S.).
    2. Darius Lakdawalla & Tomas Philipson, 1999. "Aging and the Growth of Long-Term Care," NBER Working Papers 6980, National Bureau of Economic Research, Inc.
    3. Fogel, Robert W, 1994. "Economic Growth, Population Theory, and Physiology: The Bearing of Long-Term Processes on the Making of Economic Policy," American Economic Review, American Economic Association, vol. 84(3), pages 369-95, June.
    4. Jonathan Gruber & David A. Wise, 2004. "Social Security Programs and Retirement around the World: Micro-Estimation," NBER Books, National Bureau of Economic Research, Inc, number grub04-1.
    5. Seshamani, Meena & Gray, Alastair M., 2004. "A longitudinal study of the effects of age and time to death on hospital costs," Journal of Health Economics, Elsevier, vol. 23(2), pages 217-235, March.
    6. Sally C. Stearns & Edward C. Norton, 2004. "Time to include time to death? The future of health care expenditure predictions," Health Economics, John Wiley & Sons, Ltd., vol. 13(4), pages 315-327.
    7. Borsch-Supan, Axel, 2000. "Incentive effects of social security on labor force participation: evidence in Germany and across Europe," Journal of Public Economics, Elsevier, vol. 78(1-2), pages 25-49, October.
    8. Vaupel, James W, 1998. "Demographic Analysis of Aging and Longevity," American Economic Review, American Economic Association, vol. 88(2), pages 242-47, May.
    9. Thai-Thanh Dang & Pablo Antolín & Howard Oxley, 2001. "Fiscal Implications of Ageing: Projections of Age-Related Spending," OECD Economics Department Working Papers 305, OECD Publishing.
    10. David M. Cutler & Ellen Meara, 1999. "The Concentration of Medical Spending: An Update," NBER Working Papers 7279, National Bureau of Economic Research, Inc.
    11. Kathleen McGarry, 2004. "Health and Retirement: Do Changes in Health Affect Retirement Expectations?," Journal of Human Resources, University of Wisconsin Press, vol. 39(3).
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    Cited by:
    1. Ivonne Honekamp & Daniel Possenriede, 2008. "Redistributive effects in public health care financing," The European Journal of Health Economics, Springer, vol. 9(4), pages 405-416, November.
    2. Casper van Ewijk & Nick Draper & Harry ter Rele & Ed Westerhout, 2006. "Ageing and the sustainability of Dutch public finances," CPB Special Publication 61, CPB Netherlands Bureau for Economic Policy Analysis.

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