Keywords: Demographics, medicare
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.
Full paper (3124 KB PDF)
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Last update: September 10, 1999