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Demographics and medical care spending: standard and non-standard effects

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  • David M. Cutler
  • Louise Sheiner

Abstract

In this paper, we examine the effects of likely demographic changes on medical spending for the elderly. Standard forecasts highlight the potential for greater life expectancy to increase costs: medical costs generally increase with age, and greater life expectancy means that more of the elderly will be in the older age groups. Two factors work in the other direction, however. First, increases in life expectancy mean that a smaller share of the elderly will be in the last year of life, when medical costs generally are very high. Furthermore, more of the elderly will be dying at older ages, and end-of-life costs typically decline with age at death. Second, disability rates among the surviving population have been declining in recent years by 0.5 to 1.5 percent annually. Reductions in disability, if sustained, will also reduce medical spending. Thus, changes in disability and mortality should, on net, reduce average medical spending on the elderly. However, these effects are not as large as the projected increase in medical spending stemming from increases in overall medical costs. Technological change in medicine at anywhere near its historic rate would still result in a substantial public sector burden for medical costs.

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File URL: http://www.federalreserve.gov/pubs/feds/1999/199920/199920abs.html
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File URL: http://www.federalreserve.gov/pubs/feds/1999/199920/199920pap.pdf
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Bibliographic Info

Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series Finance and Economics Discussion Series with number 1999-20.

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Date of creation: 1999
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Handle: RePEc:fip:fedgfe:1999-20

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Keywords: Demography ; Medicare;

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  1. Meltzer, David, 1997. "Accounting for future costs in medical cost-effectiveness analysis," Journal of Health Economics, Elsevier, vol. 16(1), pages 33-64, February.
  2. Thomas Philipson & Darius Lakdawalla, 1998. "The Rise in Old Age Longevity and the Market for Long-Term Care," University of Chicago - George G. Stigler Center for Study of Economy and State 146, Chicago - Center for Study of Economy and State.
  3. Fogel, Robert W., 1993. "Economic Growth, Population Theory, and Physiology: The Bearing of Long-Term Processes on the Making of Economic Policy," Nobel Prize in Economics documents 1993-1, Nobel Prize Committee.
  4. James M. Poterba & Lawrence H. Summers, 1985. "Public Policy Implications of Declining Old-Age Mortality," Working papers 378, Massachusetts Institute of Technology (MIT), Department of Economics.
  5. Victor R. Fuchs, 1998. "Health Care for the Elderly: How Much? Who Will Pay for It?," NBER Working Papers 6755, National Bureau of Economic Research, Inc.
  6. Timothy Waidmann & John Bound & Michael Schoenbaum, 1995. "The Illusion of Failure: Trends in the Self-Reported Health of the U.S. Elderly," NBER Working Papers 5017, National Bureau of Economic Research, Inc.
  7. Samuel H. Preston, 1996. "American Longevity: Past, Present, and Future," Center for Policy Research Policy Briefs 7, Center for Policy Research, Maxwell School, Syracuse University.
  8. Garber, Alan M. & Phelps, Charles E., 1997. "Economic foundations of cost-effectiveness analysis," Journal of Health Economics, Elsevier, vol. 16(1), pages 1-31, February.
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