Understanding international measures of health spending: Age-adjusting expenditure on health

Assessing health system performance over time or across countries often means comparing populations with very different characteristics, including age structure. The share of the population aged 65 years and over ranges from less than 1 in 10 in some of the Latin American countries of the OECD to almost 3 in 10 in Japan. At the same time, populations are aging rapidly - on average across the OECD, there are 20% more people over 65 since 2015. Since risk of illness and ill-health generally increases with age, a population with an older demographic structure can expect higher mortality rates, greater incidence and prevalence of certain diseases, and thus higher demands for healthcare and, by consequence, higher spending on health. This working paper argues that the level of health spending depends not only on the size of the population (among other factors), but also on the demographic structure of the population. The paper reviews the international literature on age-adjusting health spending, and examines three methods of age-adjustment to report and compare health expenditure data between OECD countries and over time.