Accounting for the Rise of Health Spending and Longevity

58 Pages Posted: 5 Oct 2013

See all articles by Raquel Fonseca

Raquel Fonseca

University of Quebec at Montreal (UQAM) - Faculty of Management (ESG); Rand Corporation; Centre interuniversitaire sur le risque, les politiques économiques et l'emploi (CIRPÉE)

Pierre-Carl Michaud

University of Quebec at Montreal (UQAM) - Department of Economics; Centre Interuniversitaire sur le Risque, les Politiques Economiques et l'Emploi (CIRPÉE); RAND Corporation, Labor and Population; IZA Institute of Labor Economics; Netspar

Arie Kapteyn

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

Titus J. Galama

USC Center for Economic and Social Research

Abstract

We estimate a stochastic life-cycle model of endogenous health spending, asset accumulation and retirement to investigate the causes behind the increase in health spending and longevity in the U.S. over the period 1965-2005. We estimate that technological change and the increase in the generosity of health insurance on their own may explain 36% of the rise in health spending (technology 30% and insurance 6%), while income explains only 4% and other health trends 0.5%. By simultaneously occurring over this period, these changes may have led to complementarity effects which we find to explain an additional 57% increase in health spending. The estimates suggest that the elasticity of health spending with respect to changes in both income and insurance is larger with co-occurring improvements in technology. Technological change, taking the form of increased health care productivity at an annual rate of 1.3%, explains almost all of the rise in life expectancy at age 25 over this period, while changes in insurance and income together explain less than 10%. Welfare gains are substantial and most of the gain appears to be due to technological change.

Keywords: health spending, longevity, life-cycle models, technological change

JEL Classification: I10, I38, J26

Suggested Citation

Fonseca Benito, Raquel and Michaud, Pierre-Carl and Kapteyn, Arie and Galama, Titus J., Accounting for the Rise of Health Spending and Longevity. IZA Discussion Paper No. 7622, Available at SSRN: https://ssrn.com/abstract=2336399

Raquel Fonseca Benito (Contact Author)

University of Quebec at Montreal (UQAM) - Faculty of Management (ESG) ( email )

Case postale 8888
Succursale Centre-ville
Montreal, Quebec H3C 3P8
Canada

Rand Corporation ( email )

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

Centre interuniversitaire sur le risque, les politiques économiques et l'emploi (CIRPÉE) ( email )

Pavillon De Sève
Ste-Foy, Quebec G1K 7P4
Canada

Pierre-Carl Michaud

University of Quebec at Montreal (UQAM) - Department of Economics ( email )

P.O. Box 8888, Downtown Station
Montreal, Quebec H3C 3P8
Canada

Centre Interuniversitaire sur le Risque, les Politiques Economiques et l'Emploi (CIRPÉE) ( email )

Pavillon De Sève
Ste-Foy, Quebec G1K 7P4
Canada

RAND Corporation, Labor and Population ( email )

Santa Monica, CA 90407-2138
United States

IZA Institute of Labor Economics ( email )

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

Netspar ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

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

Titus J. Galama

USC Center for Economic and Social Research ( email )

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

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