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Toward a Framework for Improving Health Care Financing for an Aging Population: The Case of Israel

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  • Dov Chernichovsky
  • Sara Markowitz

Abstract

The conventional wisdom is that because at any time the aged cost more than the young, there is a positive relationship between aging and health care spending. It is hard, however, to find evidence that aging correlates positively with such spending. Intrigued by the puzzle, we account for the factors that contribute to changes of the age distribution of medical costs and their potential effect on aggregate cost. As changes in costs are not age neutral, the health system needs to facilitate a dynamic shift of resources from those whose relative cost rise less -- the young -- to those whose relative costs rise more -- the old. As there is an apparent market failure associated with uncertainty about growth in longevity (no market for 'death insurance'), the private market does not seem to effectively facilitate this shift. Aging, and its known correlates and antecedents produce a complex picture about the potential effect of aging on total cost of medical care in Israel. Shifting morbidity and mortality to older age can lower cost of care, all other things equal. Growth in incomes and insurance coverage are likely to increase use of care particularly amongst the old. Rising levels of education would have the opposite effect, but among the relatively young. The effect of a key element, technology, remains unknown. The Israeli experience also points to the advantages of a unified publicly financed health system with a timely allocation mechanism.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 8415.

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Date of creation: Aug 2001
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Publication status: published as "Aging and Aggregate Costs of Medical Care: Conceptual and Policy Issues," Health Economics, Volume 13 Issue 6, Pages 543 - 562 (December 2003)
Handle: RePEc:nbr:nberwo:8415

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  1. Gerdtham, Ulf-G. & Sogaard, Jes & Andersson, Fredrik & Jonsson, Bengt, 1992. "An econometric analysis of health care expenditure: A cross-section study of the OECD countries," Journal of Health Economics, Elsevier, vol. 11(1), pages 63-84, May.
  2. Joseph P. Newhouse, 1992. "Medical Care Costs: How Much Welfare Loss?," Journal of Economic Perspectives, American Economic Association, vol. 6(3), pages 3-21, Summer.
  3. Victor R. Fuchs, 2001. "The Financial Problems of the Elderly: A Holistic Approach," NBER Working Papers 8236, National Bureau of Economic Research, Inc.
  4. David M. Cutler & Ellen Meara, 1997. "The Medical Costs of The Young and Old: A Forty Year Perspective," NBER Working Papers 6114, National Bureau of Economic Research, Inc.
  5. Pedro Pita Barros, 1998. "The black box of health care expenditure growth determinants," Health Economics, John Wiley & Sons, Ltd., vol. 7(6), pages 533-544.
  6. Dov Chernichovsky, 2000. "The Public-Private Mix in the Modern Health Care System - Concepts, Issues, and Policy Options Revisited," NBER Working Papers 7881, National Bureau of Economic Research, Inc.
  7. Michael Grossman, 1972. "The Demand for Health: A Theoretical and Empirical Investigation," NBER Books, National Bureau of Economic Research, Inc, number gros72-1, June.
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