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Aging and aggregate costs of medical care: conceptual and policy issues

  • Dov Chernichovsky
  • Sara Markowitz

The conventional wisdom says that because the cost of health care for the aged is more than that of the young at any time, there is a positive relationship between the aging or higher life expectancy of the population and aggregate health care spending. It is difficult, however, to find evidence to support this argument. We present a simple framework that shows how aging of the population may not necessarily increase the total cost of medical care over time or be observed across nations. This follows because numerous other factors that change with aging affect cost of care in ways that are not age-neutral. Such factors include age-specific shifts in morbidity and mortality, growth in income and insurance coverage, rising levels of education and changing technology. Consequently, the relative medical costs of the aged may indeed increase, at least for demographic reasons. Simultaneously, however, the costs of the young may decrease for the same reasons. The Israeli experience, used as a basis for a cursory empirical discussion of the issues, supports the line of reasoning presented in the paper. Copyright © 2003 John Wiley & Sons, Ltd.

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Article provided by John Wiley & Sons, Ltd. in its journal Health Economics.

Volume (Year): 13 (2004)
Issue (Month): 6 ()
Pages: 543-562

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Handle: RePEc:wly:hlthec:v:13:y:2004:i:6:p:543-562
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  1. Michael Grossman, 1972. "The Demand for Health: A Theoretical and Empirical Investigation," NBER Books, National Bureau of Economic Research, Inc, number gros72-1, December.
  2. Dozet, Alexander & Lyttkens, Carl Hampus & Nystedt, Paul, 2002. "Health care for the elderly: two cases of technology diffusion," Social Science & Medicine, Elsevier, vol. 54(1), pages 49-64, January.
  3. 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.
  4. 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.
  5. Victor R. Fuchs, 2001. "The Financial Problems of the Elderly: A Holistic Approach," NBER Working Papers 8236, National Bureau of Economic Research, Inc.
  6. 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.
  7. 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.
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