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Optimal Demand for Medical and Long-Term Care

Author

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  • Johannes Schünemann

    (University of Fribourg, Department of Economics)

  • Holger Strulik

    (University of Goettingen, Department of Economics)

  • Timo Trimborn

    (Department of Economics and Business Economics, Aarhus University)

Abstract

For the population over 65, long-term care (LTC) expenditure constitutes a considerable share in health care expenditures. In this paper, we decompose health care into medical care, intended to improve one’s state of health, and personal care required for daily routine. Personal care can be either carried out autonomously or by a third party. In the course of aging, autonomous personal care is gradually substituted by LTC. We set up a life-cycle model in which individuals are subject to physiological aging, calibrate it with data from gerontology, and analyze the interplay between medical care and LTC. In comparative dynamic analyses, our theory-based approach allows us to causally investigate the impact of better health and rising life expectancy, triggered by higher income and better medical technology, on the expected expenditures for LTC in the future. We predict a 1.75-percentage increase in expected LTC expenditure per percentage increase in life expectancy. In terms of present value at age 20, this elasticity declines to around 1 percent. Even when considering different magnitudes of shocks in medical technology and income, we find that these elasticities remain remarkably stable.

Suggested Citation

  • Johannes Schünemann & Holger Strulik & Timo Trimborn, 2021. "Optimal Demand for Medical and Long-Term Care," Economics Working Papers 2021-07, Department of Economics and Business Economics, Aarhus University.
  • Handle: RePEc:aah:aarhec:2021-07
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    References listed on IDEAS

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    Cited by:

    1. Schünemann, Johannes & Strulik, Holger & Trimborn, Timo, 2023. "Anticipation of deteriorating health and information avoidance," Journal of Health Economics, Elsevier, vol. 89(C).
    2. Strulik, Holger, 2022. "Medical progress and life cycle choices," The Journal of the Economics of Ageing, Elsevier, vol. 23(C).
    3. Pablo Garcia-Sanchez & Olivier Pierrard, 2023. "Uncertain Lifetime, Health Investment And Welfare," LIDAM Discussion Papers IRES 2023020, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
    4. Pablo Garcia Sanchez & Luca Marchiori & Olivier Pierrard, 2023. "Long-term care expenditures and investment decisions under uncertainty," BCL working papers 171, Central Bank of Luxembourg.

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    More about this item

    Keywords

    Health; Long-Term Care; Health Behavior; Life Expectancy;
    All these keywords.

    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • I12 - Health, Education, and Welfare - - Health - - - Health Behavior
    • J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts

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