Demographics and Medical Care Spending: Standard and Non-Standard Effects

56 Pages Posted: 27 Jan 1999 Last revised: 7 Apr 2021

See all articles by David M. Cutler

David M. Cutler

Harvard University - Department of Economics; National Bureau of Economic Research (NBER); Harvard University - Harvard Kennedy School (HKS)

Louise Sheiner

Board of Governors of the Federal Reserve System; National Bureau of Economic Research (NBER)

Date Written: December 1998

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.

Suggested Citation

Cutler, David M. and Sheiner, Louise, Demographics and Medical Care Spending: Standard and Non-Standard Effects (December 1998). NBER Working Paper No. w6866, Available at SSRN: https://ssrn.com/abstract=144908

David M. Cutler (Contact Author)

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Louise Sheiner

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