Spinning the Numbers on Aging
How accurate is the 1% predicted increase in healthcare costs due to population aging? All of the variety of demographic projections published by Statistics Canada support the conclusion that population aging is not an imminent threat the sustainability of Canada’s healthcare systems. However, the accuracy of the estimated cost of aging on healthcare could vary as a function of several factors, for example:
1. Some demographic assumptions may prove wrong. Errors in predicted fertility, mortality, or migration rates could cause the actual annual growth rates to be slightly higher or lower than projected. Such errors, however, are unlikely to significantly affect estimated cost increases due to population aging (Denton & Spencer, 1999).
2. The projected increase differs depending on the accuracy of certain estimates including end-of-life costs. Some researchers are concerned that the failure of some existing studies to account for the “cost of dying” effect may result in current cost projections being too high.
To understand this effect, note that after people reach the age 65, they affect health costs in three ways: (i) While still in good health, they incur health costs similar to those of healthy people in their 50s and early 60s. (ii) If they experience chronic health problems, their health costs increase, particularly if they use institutional care; and (iii) In the months preceding their death, individuals incur “costs of dying”. There is some variation in these costs depending upon individual circumstances (e.g. greater “costs of dying” if the last months are in an acute hospital than if death is sudden or occurs in a residential facility after a long stay there) (Hollander 2007). However, for the average person these “costs of dying” are substantial, typically much higher than an individual’s annual costs in the years preceding death when the individual was healthier (McGrail et.al. 2000, Spillman & Lubitz 2000, Zweifel et.al. 1999). Seshamani and Gray (2004) emphasize the effects of age are much smaller than those of proximity to death. Zweifel et al(1999) also note that the strong relationship between age and health care expenditures (HCE) may be caused by the simple fact that at age 80 there are many more individuals living in their last 2 years of life than at age 65. They suggest “The limited impact of age on HCE suggests that population ageing may contribute much less to future growth of the health care sector than claimed by most observers.” Indeed, a key reason health costs for older people rise with age is because the proportion of people who die increases with age (McGrail et.al. 2000).
When aging results from increased longevity, people experiencing greater longevity incur added health costs in the first two ways mentioned above. But they likely will not experience “costs of dying” significantly different from those which they would have incurred had their lives not been longer. As a result, it is argued, no allowance should be made for these “costs of dying” when estimating the additional health costs caused by increased longevity. But, in fact, allowance is made for these costs in the current studies, implying that reported cost effects of aging are too high. However, the importance of any resulting error caused by neglecting this effect is still unclear because of uncertainty about the importance of increased longevity per se. as a cause of aging and about the effects of increased longevity on the “costs of dying” and on other health costs.
3. We generally think about the impact of population aging by considering how/if we will be able to afford care for the growing number of elderly. Thus, the potential impact of population aging is contingent on the strength of the economy. If the economy (typically described as the Gross Domestic Product ie GDP) does not grow, or shrinks as it did in the 2009 recession, a 1% growth in health costs associated with population aging would represent a greater burden than if GDP grew at 3.3% annually—as it did between 1995 and 2005. It is too early to know what the next several years will bring.
For a more detailed discussion of this topic see the Costs and Spending topic.
Denton FT, Spencer BG. Population aging and its economic costs: A survey of the issues and evidence. QESP Research report, SEDAP research paper No.1, McMaster University, Hamilton, ON. 1999.
Hollander MJ, Chappell NL, Prince MJ, Shapiro E. Providing care and support for an aging population: Briefing notes on key policy issues. Healthc Q 2007;10(3):34-45.p
McGrail K, Green B, Barer, M, Evans R, Hertzman C, Normand C. Age, costs of acute and long-term care and proximity to death: Evidence for 1987-88 and 1994-95 in British Columbia. Age Ageing 2000;29:249-53.
Seshamani M, Gray A. Ageing and health-care expenditure: the red herring argument revisited. Health Econ 2004;13:303-14.
Spillman B, Lubitz J. The effect of longevity on spending for acute and long-term care. N Engl JMed 2000;342(19):1409-15.
Zweifel P, Felder S, Meiers M. Ageing of population and health care expenditure: A red herring? Health Econ 1999;8:485-96.