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Accounting for the Rise of Health Spending and Longevity

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Author Info

  • Fonseca, Raquel

    ()
    (University of Québec at Montréal)

  • Michaud, Pierre-Carl

    ()
    (University of Québec at Montréal)

  • Kapteyn, Arie

    ()
    (University of Southern California)

  • Galama, Titus

    ()
    (University of Southern California)

Abstract

We estimate a stochastic life-cycle model of endogenous health spending, asset accumulation and retirement to investigate the causes behind the increase in health spending and longevity in the U.S. over the period 1965-2005. We estimate that technological change and the increase in the generosity of health insurance on their own may explain 36% of the rise in health spending (technology 30% and insurance 6%), while income explains only 4% and other health trends 0.5%. By simultaneously occurring over this period, these changes may have led to complementarity effects which we find to explain an additional 57% increase in health spending. The estimates suggest that the elasticity of health spending with respect to changes in both income and insurance is larger with co-occurring improvements in technology. Technological change, taking the form of increased health care productivity at an annual rate of 1.3%, explains almost all of the rise in life expectancy at age 25 over this period, while changes in insurance and income together explain less than 10%. Welfare gains are substantial and most of the gain appears to be due to technological change.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 7622.

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Length: 58 pages
Date of creation: Sep 2013
Date of revision:
Handle: RePEc:iza:izadps:dp7622

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Keywords: health spending; longevity; life-cycle models; technological change;

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  11. Richard M. H. Suen, 2005. "Technological Advance and the Growth in Health Care Spending," Economie d'Avant Garde Research Reports 13, Economie d'Avant Garde.
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