Health Care Expenditures and Longevity: Is There a Eubie Blake Effect?

26 Pages Posted: 1 Aug 2012 Last revised: 14 Sep 2012

See all articles by Friedrich Breyer

Friedrich Breyer

University of Konstanz - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Normann Lorenz

University of Trier

Thomas Niebel

ZEW – Leibniz Centre for European Economic Research

Date Written: July 1, 2012

Abstract

It is still an open question whether increasing life expectancy as such is causing higher health care expenditures (HCE) in a population. According to the 'red herring' hypothesis, the positive correlation between age and HCE is exclusively due to the fact that mortality rises with age and a large share of HCE is caused by proximity to death. As a consequence, rising longevity - through falling mortality rates - may even reduce HCE. However, a weakness of previous empirical studies is that they use cross-sectional evidence to make inferences on a development over time. In this paper we analyze the impact of rising longevity on the trend of HCE over time by using data for a pseudo-panel of German sickness fund members over the period 1997-2009. Using (dynamic) panel data models, we find that age, mortality and five-year survival rates have a positive impact on per-capita HCE. Our explanation for the last finding is that physicians treat patients more aggressively if they think the result will pay off for a longer time span, which we call 'Eubie Blake effect'. A simulation on the basis of an official population forecast for Germany is used to isolate the effect of demographic ageing on real per-capita HCE over the next decades.

Keywords: health care expenditures, ageing, longevity, 5-year survival rate

JEL Classification: H51, J11, I19

Suggested Citation

Breyer, Friedrich and Lorenz, Normann and Niebel, Thomas, Health Care Expenditures and Longevity: Is There a Eubie Blake Effect? (July 1, 2012). DIW Berlin Discussion Paper No. 1226. Available at SSRN: https://ssrn.com/abstract=2121198 or http://dx.doi.org/10.2139/ssrn.2121198

Friedrich Breyer (Contact Author)

University of Konstanz - Department of Economics ( email )

Fachbereich Wirtschaftswissenschaften Fach D-135
D-78457 Konstanz
Germany
+49 (0)75 31/88-25 68 (Phone)
+49 (0)75 31/88-41 35 (Fax)

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Normann Lorenz

University of Trier ( email )

Thomas Niebel

ZEW – Leibniz Centre for European Economic Research ( email )

P.O. Box 10 34 43
L 7,1
D-68034 Mannheim, 68034
Germany

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