Health and Welfare Services Expenditure in an Aging World

The world's population is aging, albeit at different rates in different countries. IIASA is building an economic-demographic model for exploring the consequences on the global macroeconomy and has so far concentrated on impacts mediated through public and private pension systems. It now wishes to extend the model to cover other sectors whose provision is also highly age-sensitive, including health and welfare services. This paper explores the consequences of population aging for these vital services and considers the basic mechanisms fueling their growth. These mechanisms fall into essentially two categories: the first is related to the biomedical processes of aging which can lead to chronic illness and disability in old age. The second concerns the costs of treatment and long-term care which, in turn, are a function of medical technology and institutional factors, how services are delivered, and who bear the costs. Using simple but explicit projection methodologies, we project health care and disability-related expenditure two major world regions, corresponding to more- and less developed countries (MDCs and LDCs). The key policy-related conclusions are: - Aging will overtake population growth as the main demographic driver of health expenditure growth, but its effect will be less than technological and institutional factors. - Health expenditure will expand rapidly in LDCs (relative to GDP) to the same sorts of levels currently observed in MDCs. - The number of disabled will grow substantially, but will level out in MDCs by 2050 (earlier for all but the oldest age groups), while the number of disabled in all age groups will continue to grow in LDCs. Assuming that most care of the disabled continues to be provided by the family and community, projected increases in disability-related expenditure are modest.