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Demographics and Medical Care Spending: Standard and Non-Standard Effects

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  • David M. Cutler
  • Louise Sheiner

Abstract

In this paper, we examine the effects of likely demographic changes on medical spending for the elderly. Standard forecasts highlight the potential for greater life expectancy to increase costs: medical costs generally increase with age, and greater life expectancy means that more of the elderly will be in the older age groups. Two factors work in the other direction, however. First, increases in life expectancy mean that a smaller share of the elderly will be in the last year of life, when medical costs generally are very high. Furthermore, more of the elderly will be dying at older ages, and end-of-life costs typically decline with age at death. Second, disability rates among the surviving population have been declining in recent years by 0.5 to 1.5 percent annually. Reductions in disability, if sustained, will also reduce medical spending. Thus, changes in disability and mortality should, on net, reduce average medical spending on the elderly. However, these effects are not as large as the projected increase in medical spending stemming from increases in overall medical costs. Technological change in medicine at anywhere near its historic rate would still result in a substantial public sector burden for medical costs.

Suggested Citation

  • David M. Cutler & Louise Sheiner, 1998. "Demographics and Medical Care Spending: Standard and Non-Standard Effects," NBER Working Papers 6866, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:6866 Note: HC
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    Cited by:

    1. David M. Cutler & Ellen Meara, 2001. "The Concentration of Medical Spending: An Update," NBER Chapters,in: Themes in the Economics of Aging, pages 217-240 National Bureau of Economic Research, Inc.
    2. Jeffrey Geppert & Mark B. McClellan, 2001. "Trends in Medicare Spending Near the End of Life," NBER Chapters,in: Themes in the Economics of Aging, pages 201-216 National Bureau of Economic Research, Inc.
    3. Axel Börsch-Supan, 2004. "From Public Pension to Private Savings: The Current Pension Reform Process in Europe," MEA discussion paper series 04050, Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy.
    4. Axel Borsch-Supan & Barbara Berkel, 2003. "Pension Reform in Germany: The Impact on Retirement Decisions," NBER Working Papers 9913, National Bureau of Economic Research, Inc.
    5. Barbara Berkel & Axel Börsch-Supan, 2003. "Renteneintrittsentscheidungen in Deutschland: Langfristige Auswirkungen verschiedener Reformoptionen," MEA discussion paper series 03031, Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy.
    6. Douglas W. Elmendorf & Louise Sheiner, 2000. "Should America save for its old age? Population aging, national saving, and fiscal policy," Finance and Economics Discussion Series 2000-03, Board of Governors of the Federal Reserve System (U.S.).
    7. John B. Shoven, 2008. "Adjusting Government Policies for Age Inflation," NBER Working Papers 14231, National Bureau of Economic Research, Inc.
    8. Louise Sheiner, 2004. "The effects of technology on the age distribution of health spending: a cross-country perspective," Finance and Economics Discussion Series 2004-14, Board of Governors of the Federal Reserve System (U.S.).
    9. Murphy, Michael & Martikainen, Pekka, 2013. "Use of hospital and long-term institutional care services in relation to proximity to death among older people in Finland," Social Science & Medicine, Elsevier, vol. 88(C), pages 39-47.
    10. John Sabelhaus & Michael Simpson & Julie Topoleski, 2004. "Incorporating Longevity Effects into Long-Term Medicare Projections: Technical Paper 2004-02," Working Papers 15190, Congressional Budget Office.
    11. K Blackburn & H Issa, 2002. "Endogenous Life Expectancy in a Simple Model of Growth," Centre for Growth and Business Cycle Research Discussion Paper Series 13, Economics, The Univeristy of Manchester.
    12. Louise Sheiner & David M. Cutler, 2000. "Generational Aspects of Medicare," American Economic Review, American Economic Association, vol. 90(2), pages 303-307, May.
    13. Ludwig Dittrich & Dana Stara, 2013. "The Impact of Aging Population on the Rise of the Health Care Cost in the Czech Republic," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 19(1), pages 11-17, February.
    14. John B. Shoven, 2007. "New Age Thinking: Alternative Ways of Measuring Age, Their Relationship to Labor Force Participation, Goverment Policies and GDP," NBER Working Papers 13476, National Bureau of Economic Research, Inc.
    15. Ed Westerhout & Frank Pellikaan, 2005. "Can we afford to live longer in better health?," CPB Document 85, CPB Netherlands Bureau for Economic Policy Analysis.
    16. Berkel, Barbara & Börsch-Supan, Axel, 2004. "Pension reform in Germany : the impact on retirement decisions," Papers 04-62, Sonderforschungsbreich 504.
    17. Axel Börsch-Supan & Christina Benita Wilke, 2003. "The German Public Pension System: How it Was, How it Will Be," MEA discussion paper series 03034, Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy.
    18. Douglas W. Elmendorf & Louise M. Sheiner, 2000. "Should America Save for Its Old Age? Fiscal Policy, Population Aging, and National Saving," Journal of Economic Perspectives, American Economic Association, vol. 14(3), pages 57-74, Summer.
    19. Marcelin Joanis & David Boisclair & Claude Montmarquette, 2004. "La santé au Québec : des options pour financer la croissance," CIRANO Project Reports 2004rp-04, CIRANO.
    20. Thomas Bjørner & Søren Arnberg, 2012. "Terminal costs, improved life expectancy and future public health expenditure," International Journal of Health Economics and Management, Springer, vol. 12(2), pages 129-143, June.
    21. Yanqin Fan & Dong Li & Qi Li, 2004. "Nonlinearity in medical expenditures: a new semiparametric approach," Applied Economics, Taylor & Francis Journals, vol. 36(9), pages 911-916.
    22. Axel Börsch-Supan & Barbara Berkel, 2004. "Pension Reform in Germany: The Impact on Retirement Decisions," MEA discussion paper series 04062, Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy.
    23. Sally C. Stearns & Edward C. Norton, 2004. "Time to include time to death? The future of health care expenditure predictions," Health Economics, John Wiley & Sons, Ltd., vol. 13(4), pages 315-327.
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    25. Carol Propper, 2001. "Expenditure on healthcare in the UK: a review of the issues," Fiscal Studies, Institute for Fiscal Studies, vol. 22(2), pages 151-183, June.

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