Accounting for the Rise of Health Spending and Longevity
AbstractWe 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 InfoPaper provided by CIRPEE in its series Cahiers de recherche with number 1326.
Date of creation: 2013
Date of revision:
Demand for health; life cycle; health spending; technology; insurance; longevity;
Other versions of this item:
- Fonseca, Raquel & Michaud, Pierre-Carl & Kapteyn, Arie & Galama, Titus, 2013. "Accounting for the Rise of Health Spending and Longevity," IZA Discussion Papers 7622, Institute for the Study of Labor (IZA).
- J01 - Labor and Demographic Economics - - General - - - Labor Economics: General
- I1 - Health, Education, and Welfare - - Health
- O33 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
This paper has been announced in the following NEP Reports:
- NEP-AGE-2013-09-26 (Economics of Ageing)
- NEP-ALL-2013-09-26 (All new papers)
- NEP-DEM-2013-09-26 (Demographic Economics)
- NEP-HEA-2013-09-26 (Health Economics)
- NEP-IAS-2013-09-26 (Insurance Economics)
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