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On the relationship between aging, edical progress and age-specific health care expenditures

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  • Ried, Walter
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    Abstract

    This paper investigates the impact of population aging, driven by medical progress, upon agespecific expenditure on health care. In a model set up in discrete time, individuals at each age may catch a lethal disease which, upon receiving appropriate medical treatment, nevertheless involves a mortality risk such that length of life is stochastic. The incidence of lethal diseases, the associated survival probability conditional upon treatment, and health care expenditure conditional upon health status may all depend on an individual´s history. For a given age, the history of an individual contains information on her health status in the past. Medical progress is taken to involve an increase in the survival probability of a specified lethal disease. On the one hand, this produces a direct effect on age-specific health care expenditure to the extent that progress affects the cost of treatment of the disease. On the other hand, indirect effects may also arise. These effects are caused by individuals who, having survived the disease at some prior age due to progress, change the structure of individuals alive at current age. Specifically, the new survivors” may have an influence on age-specific expenditure either through changes in the incidence of lethal diseases or in the associated treatment cost. The sign of an indirect effect crucially depends on health care expenditure for new survivors” relative to their peers. The analysis yields a number of general results which are important for the discussion of the impact of medical progress on the age profile of health care expenditure. Compression of morbidity, to the extent that it involves a reduction in age-specific expenditure, is neither necessary nor sufficient for medical progress to produce a downward shift of the profile. A similar observation applies to an expansion of morbidity. Both concepts relate to new survivors” and, thus, take into account only indirect effects of progress. --

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    Bibliographic Info

    Paper provided by Ernst Moritz Arndt University of Greifswald, Faculty of Law and Economics in its series Wirtschaftswissenschaftliche Diskussionspapiere with number 08/2007.

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    Date of creation: 2007
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    Handle: RePEc:zbw:grewdp:082007

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    Keywords: aging; medical progress; age-specific expenditure on health care;

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    1. Victor R. Fuchs, 1984. ""Though Much is Taken" -- Reflections on Aging, Health, and Medical Care," NBER Working Papers 1269, National Bureau of Economic Research, Inc.
    2. Florian Buchner & J�rgen Wasem, 2006. "“Steeping” of Health Expenditure Profiles," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan, vol. 31(4), pages 581-599, October.
    3. Andreas Werblow & Stefan Felder & Peter Zweifel, 2007. "Population ageing and health care expenditure: a school of 'red herrings'?," Health Economics, John Wiley & Sons, Ltd., vol. 16(10), pages 1109-1126.
    4. 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.
    5. Jeff Richardson, 2004. "Ageing and health care: inexorable costs versus modest adaptation," Centre for Health Economics Working Papers, Monash University, Centre for Health Economics 150/04, Monash University, Centre for Health Economics.
    6. 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, Elsevier, vol. 23(2), pages 217-235, March.
    7. 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.
    8. Joseph P. Newhouse, 1992. "Medical Care Costs: How Much Welfare Loss?," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 6(3), pages 3-21, Summer.
    9. Friedrich Breyer & Stefan Felder, 2004. "Life Expectancy and Health Care Expenditures: A New Calculation for Germany Using the Costs of Dying," Discussion Papers of DIW Berlin 452, DIW Berlin, German Institute for Economic Research.
    10. Peter Zweifel & Stefan Felder & Markus Meiers, 1999. "Ageing of population and health care expenditure: a red herring?," Health Economics, John Wiley & Sons, Ltd., vol. 8(6), pages 485-496.
    11. W. M. T. Westerhout, 2006. "Does Ageing Call for a Reform of the Health Care Sector?," CESifo Economic Studies, CESifo, CESifo, vol. 52(1), pages 1-31, March.
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