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Health Care Expenditures and Longevity: Is There a Eubie Blake Effect?

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  • Friedrich Breyer
  • Normann Lorenz
  • Thomas Niebel

Abstract

It is still an open question whether increasing life expectancy as such is causing higher health care expenditures (HCE) in a population. According to the "red herring" hypothesis, the positive correlation between age and HCE is exclusively due to the fact that mortality rises with age and a large share of HCE is caused by proximity to death. As a consequence, rising longevity - through falling mortality rates - may even reduce HCE. However, a weakness of previous empirical studies is that they use cross-sectional evidence to make inferences on a development over time. In this paper we analyse the impact of rising longevity on the trend of HCE over time by using data for a pseudo-panel of German sickness fund members over the period 1997-2009. Using (dynamic) panel data models, we find that age, mortality and five-year survival rates have a positive impact on per-capita HCE. Our explanation for the last finding is that physicians treat patients more aggressively if they think the result will pay off for a longer time span, which we call "Eubie Blake effect". A simulation on the basis of an official population forecast for Germany is used to isolate the effect of demographic ageing on real per-capita HCE over the next decades.

Suggested Citation

  • Friedrich Breyer & Normann Lorenz & Thomas Niebel, 2012. "Health Care Expenditures and Longevity: Is There a Eubie Blake Effect?," Discussion Papers of DIW Berlin 1226, DIW Berlin, German Institute for Economic Research.
  • Handle: RePEc:diw:diwwpp:dp1226
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    More about this item

    Keywords

    Health care expenditures; ageing; longevity; 5-year survival rate;
    All these keywords.

    JEL classification:

    • H51 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Health
    • J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts
    • I19 - Health, Education, and Welfare - - Health - - - Other

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