Health Expenditures,
Longevity and Growth
by B. Dormont, J. Oliveira Martins, F. Pelgrin
and M. Suhrcke
Discussant: V. Galasso
Health Spending and Growth: A Virtuous Circle?
Health
Spending
Medical
Innovation
Health Status
& Longevity
R&D
Productivity
Labor
Force
Income
Economic
Growth
Too Good to be True?

What drives Health Care Spending?

Does Health Spending lead to better Health
& higher Longevity?

Longevity and Labor Force

Income and Health Care Spending
What drives Health Care Spending?

Aging
 …..not
quite
 “proximity to death” spending
“Proximity to death” spending
What drives Health Care Spending?
Aging
 Increase in Medical practices for given
morbidity


treatment expansion
 quality-adjusted prices do not raise much

Why?

Institutional Factors: Introduction of Medicare
and Medicaid in the 60s
 Pension annuities increase the value of
longevity (Philipson and Becker, JPE 1998)
Public and Private Health Spending
Health Spending in US
18
16
14
10
8
6
4
2
Total Health
Public Health
Private Health
20
04
20
02
20
00
19
98
19
96
19
94
19
92
19
90
19
88
19
86
19
84
19
82
19
80
19
78
19
76
19
74
19
72
19
70
19
68
19
66
19
64
19
62
0
19
60
GDP %
12
Does Health Spending lead to
better Health & higher Longevity?

The report: Yes!

Increase in Longevity
 Compression of Morbidity
Healthy Aging

Too Optimistic View?
How do Elderly people die?
Mortality Rate by leading causes for elderly (65+) in US
6000
deaths per 100000 elderly
5000
4000
3000
2000
1000
0
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
years
All causes
Cancer
Major cardiovascular diseases
Respiratory
all other causes
2000
2001
2002
2003
Health Spending & Longevity

Medical improvements (prevention, drugs, acute
management) explain from 50% to 2/3 of
cardiovascular mortality reduction.

Competing explanation: People have modified
their Health Behavior



Reduction of smoking
Diet & Exercise
Larger reduction in mortality among educated
people: the Health Gradient
Health Spending & Healthy Aging

Healthy Aging for everyone?
 Not
quite!
Healthy and Rich
Healthy Aging (Mackenbach, Norway 1987)
50
45
40
35
30
25
life expectancy
healthy life expectancy
Higher education
Secondary education
Basic education
Health Spending & Healthy Aging

Healthy Aging for everyone?

Not quite!

Do rich (or high educated) individuals have better access to
medical care?

Or do they have a different health behavior?
From Health & Longevity to Growth

Some virtuous channels:
 Updating
participation rate (and retirement age)
with longevity gains increases the labor force
 Higher
longevity as an incentive to accumulate
human capital
 R&D
from Medical Innovation to Growth.
Longevity & Retirement
Old Age
Dependency
Ratio
Effective
Retirement
Age
Pension Dependency
Ratio
Required
Retirem
ent Age
Country
2000
2050
2000
2000
2050
2050
France
25.9
48.8
58
40.4
76.1
68
Germany
25.0
51.5
61
36.0
67.7
70
Italy
27.9
64.5
59
44.0
91.7
71
Spain
26.0
63.4
61
34.2
80.2
73
UK
25.3
44.3
63
29.2
50.9
71
US
20.5
36.3
63
23.4
41.5
68
From Health & Longevity to Growth

Longevity and Retirement:

Large increase in retirement age is required

Health Gradient….again!

What about the labor demand?
Healthy and Rich
From Health & Longevity to Growth

Longevity and Retirement:

Large increase in retirement age is required
 Health Gradient….again!
 What about the labor demand?

R&D from Medical Innovation to Growth.
 The
role of market structure.
 Is the domestic market what matters?
From Growth to More Health Care?

Income and Health Care

Is Health Care a superior good?
 Not quite: unitary elasticity on cross-country
regression
 Projections on Health Spending use:




Demographic determinants
Income
Residual
Healthy Bodies and Thick Wallets