On the Rise of Health Spending and Longevity

50 Pages Posted: 22 Mar 2010

See all articles by Pierre-Carl Michaud

Pierre-Carl Michaud

RAND Corporation; IZA Institute of Labor Economics

Raquel Fonseca

RAND Corporation

Titus J. Galama

USC Center for Economic and Social Research

Arie Kapteyn

Dornsife Center for Economic and Social Research - University of Southern California; IZA Institute of Labor Economics

Multiple version iconThere are 2 versions of this paper

Date Written: December 1, 2009

Abstract

We use a calibrated stochastic life-cycle model of endogenous health spending, asset accumulation and retirement to investigate the causes behind the increase in health spending and life expectancy over the period 1965-2005. We estimate that technological change along with the increase in the generosity of health insurance may explain independently 53% of the rise in health spending (insurance 29% and technology 24%) while income less than 10%. By simultaneously occurring over this period, these changes may have lead to a “synergy” or interaction effect which helps explain an additional 37% increase in health spending. We estimate that technological change, taking the form of increased productivity at an annual rate of 1.8%, explains 59% of the rise in life expectancy at age 50 over this period while insurance and income explain less than 10%.

Keywords: demand for health, health spending, insurance, technological change, longevity

JEL Classification: I10, I38, J26

Suggested Citation

Michaud, Pierre-Carl and Fonseca, Raquel and Galama, Titus J. and Kapteyn, Arie, On the Rise of Health Spending and Longevity (December 1, 2009). Netspar Discussion Paper No. 12/2009-040. Available at SSRN: https://ssrn.com/abstract=1572368 or http://dx.doi.org/10.2139/ssrn.1572368

Pierre-Carl Michaud

RAND Corporation ( email )

1776 Main Street
Santa Monica, CA 90407-2138
United States

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Raquel Fonseca (Contact Author)

RAND Corporation ( email )

1776 Main Street
P.O. Box 2138
Santa Monica, CA 90407-2138
United States

Titus J. Galama

USC Center for Economic and Social Research ( email )

Playa Vista, CA
United States
+310 430 6358 (Phone)

Arie Kapteyn

Dornsife Center for Economic and Social Research - University of Southern California ( email )

635 Downey Way
Los Angeles, CA 90089-3332
United States
310-448-5383 (Phone)

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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