Age, morbidity, and time to death: End-of-life expenditures on health care for the young-old population

In this paper, we analyze resource allocation and explore the life-cycle evolution of health care expenditures (HCE) by investigating the effect of age, morbidity and time to death (TTD) on HCE for the young-old population. Using a rich 10-year population-level panel, we estimate a fixed-effects model to analyze HCE patterns for different health care services and by primary disease. Our main findings indicate that the effect of age on total HCE is lower when morbidity is controlled for while it increases when we also condition on TTD. This indicates that, compared to those incurred at older ages, earlier deaths are associated with higher HCE. At younger ages, increased expenditures are also observed as the severity of the health condition deteriorates. We also show that expenses for out-of-hospital services mainly drive the evolution of total HCE by age, while inpatient expenses are primarily determined by morbidity and TTD. In the end-of-life period, hospital costs continue to rise, whereas expenses incurred for all other services fall sharply in the year of death. We prove that expenses for long-lasting conditions start to increase long before death, while those for acute conditions grow exponentially only in the last two years of life. Our work contributes to informing cost-containment policies through a better understanding of HCE evolution during the life cycle and in the last years of life.