Time until Death a Better Indicator of Health Care Spending than Aging

WASHINGTON, JUNE 30, 2008--There is growing concern that the aging of the U.S. population will result in health expenditure spiraling out of control. Economist Peter Zweifel of the University of Zurich has found that it is not aging that leads to increased health expenditure, but rather the shrinking of the time one has left to live. He discussed his findings at an AEI event on June 27.

Aging is traditionally thought of as a driver of health care expenditures. The historical assumption is that as a person gets older, their health expenditure increases. But Zweifel has discovered that aging is related to health care expenditure only because of its relation to time remaining before death. He found that when time to death and other determinants of health care expenditure are controlled, one sees little correlation between aging and health care expenditure.

Whether or not this has implications in the debate over the approaching fiscal crisis of federal health programs in the United States is questionable. Louise Sheiner, an economist at the Federal Reserve, pointed out that the difference between other countries and the United States is that in the latter, the big federal program--Medicare--pays out only to older citizens. Thus an aging population will lead to more enrollees. Phil Ellis of the Congressional Budget Office expanded on this point, stating that while he agreed with Zweifel that the effects of the aging of the population on total health care expenditure is small, the effects of aging on federal expenditure in the United States are quite large. This is compounded by the fact that the cost per enrollee has grown and continues to grow at a rate faster than the growth of GDP growth.

Among the other discussion topics at the conference:

• James Lubitz, formerly of the National Center for Health Statistics, questioned whether or not better health in all instances decreases total health expenditure over the course of one's life.
• Zweifel criticized Medicare for its one-size-fits-all approach to public health insurance. He stated that Switzerland's approach, in which the government gives all citizens a subsidy to use to purchase insurance from a number of private plans, does a much better job of ensuring that people get the care they want and feel comfortable paying for. Mark V. Pauly of the Wharton School proposes a similar voucher structure for Medicare in the recent AEI Press book Markets Without Magic: How Competition Might Save Medicare.

--WALTON DUMAS

For video, audio, and more information about this event, visit www.aei.org/event1738/. For more information about AEI's Health Policy Studies program, visit www.aei.org/health/.

For media inquiries, contact Véronique Rodman at 202.862.4870 or vrodman@aei.org.

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