Health Care Expenditures and Longevity: Is There a Eubie Blake Effect?
26 Pages Posted: 1 Aug 2012 Last revised: 14 Sep 2012
Date Written: July 1, 2012
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: Suggested Citation