Ageing and health‐care expenditure: the red herring argument revisited*

Zweifel and colleagues have previously proposed that proximity to death is a more important influence on health‐care costs than age, suggesting that demographic change per se will not have a large impact on future aggregate health expenditure. However, issues of econometric methodology have led to challenges of the robustness of these findings. This paper revisits the analysis. Using a longitudinal hospital data set from Oxfordshire, England, the two‐step Heckman model from the Zweifel study is first replicated, to find that neither age nor proximity to death have a significant effect on hospital costs. Econometric problems with the model are demonstrated, and instead a two‐part model shows both age and proximity to death to have significant effects on quarterly hospital costs. Cost predictions, calculated with bootstrapped 95% confidence intervals, further demonstrate that while age may significantly affect quarterly costs, these cost changes are small compared to the tripling of quarterly costs that occurs with approaching death in the last year of life. The analyses show the importance of model selection to properly assess the determinants of health‐care expenditures. Copyright © 2003 John Wiley & Sons, Ltd.