Economía y salud
BOLETÍN INFORMATIVO - Año 2018. Abril. nº 90
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XXXVIII Jornadas de Economía de la Salud
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The economics of healthy and active ageing: what are the costs and benefits of population ageing (and what role for policy)?



Jonathan Cylus, Charles Normand, Josep Figueras
European Observatory on Health Systems and Policies
Email: J.d.cylus@lse.ac.uk

 

Introduction

Population ageing presents both challenges and opportunities for societies around the world[1]. As the share of the population at older age increases, concerns abound over how to cope with accompanying expectations of greater health and long-term care needs, as well as implications for economic output, such as having a comparatively smaller share of younger people at traditional working age. The consensus among many is that these demographic changes portend inevitable consequences, including for economic growth, public finances and households.

Yet taking a more balanced view, it becomes evident that a growing older population is not necessarily so costly to care for, and that older people often provide significant economic and societal benefits –especially if they are healthy and active. This is the broad perspective of the European Observatory on Health System and Policies’ Economics of Healthy and Active Ageing programme of work: to inspire a “re-think” of the costs and benefits attributable to population ageing.

Highlighting the links between the health and activity of older people, their economic and societal costs and contributions, and the role of policy intervention, we review the latest research and policy initiatives to gain a more evidence-based look at the economics of population ageing. This brief article provides an introduction to some of the key findings.

 

How will population ageing affect health and long-term care costs?

The notion that it is costly to provide health and long-term care to older people is pervasive. A common view is that health and long-term care spending increases with calendar age, and so as older people comprise a larger share of the population, expenditures will increase commensurately and unsustainably. However, there are important differences across countries in the extent to which health care spending in fact increases with age. For example, according to data from the European Commission, in Hungary, the average 80-year-old man’s health care cost 15.8 times as much as that of the average 20-year-old man in 2015, whereas in Cyprus, the average 80-year-old man cost only 2.7 times as much as the average 20-year-old man[2].

Yet even despite this typical pattern of higher health care spending for older people, shifting demographics alone are expected to add no more than one additional percentage point to average annual per person health care expenditure growth rates over 2010 to 2060 in a selection of European countries[3]. Population ageing is simply too gradual a process to rapidly accelerate health care expenditure growth[4]. To put the magnitude of the effect of population ageing in perspective, among OECD countries, nominal per person annual health care expenditure growth was 5.5% in the median country; thus, by historical standards, population ageing would be expected to make up only a modest share of annual health spending growth.

Health care spending patterns by age are likely driven by a number of factors at system level, including coverage levels, accessibility, incentives for provision, and payment mechanisms, among others. Additionally, much of the evidence suggests that calendar age itself is in fact not the primary reason for the observed increases in spending associated with age. Rather, researchers have identified related factors such as proximity to death and poor health status as more important determinants of health spending[5-7]. And although health care spending increases rapidly in the final months of life, there is also research showing that beginning at a certain age, the older people are when they die, the cheaper is their death. For example, research from Canada finds that the health care costs of dying are lower for those over age 80[6]. It follows therefore that where longevity increases, it is possible that the health care costs of older people relative to younger people will actually fall, reducing the anticipated effects of population ageing on total health care expenditure growth.

Of course, proximity to death itself may also serve to some extent as a proxy for high levels of morbidity or disability. Although it is of primary interest to policymakers to understand how population health is evolving, there remains considerable uncertainty over whether there has been a compression of morbidity (i.e. a reduction in the number of unhealthy years lived as a proportion of life expectancy) or expansion of morbidity (an expansion of unhealthy relative to healthy life-years due to increased survival of frail people). There are likely different trends by health condition, making it impossible to draw definitive conclusions. Nevertheless, whether people are living longer in better or worse health is likely to have a notable impact on health care expenditures in the future[8].

While health care spending is not materially driven by population ageing, demand for long-term care is expected to increase substantially as a result of population ageing given that it is highly linked to age, with around half of users over 80 years of age in most countries[9]; these increases are viewed by many to pose significant challenges from a sustainability perspective. However current long-term care spending is low – making up less than 2% of GDP in the majority of OECD countries with data available – especially when compared to health care spending, so that even large increases in spending are unlikely to result in long-term care consuming a significant share of resources. It is important to note that long-term care expenditure data is notoriously unreliable due to differences across countries in definitions, the types of care available, how care is financed, and which Ministry is responsible for which services. One particular issue is that the reported long-term care expenditures only represent formal long-term care; to fully understand the economic costs of providing long-term care, one must also account for the costs of providing informal long-term care, particularly in countries where this comprises the majority of activity to more accurately assess the sustainability of long-term care systems[10]. These household costs of informal caregiving include missed employment opportunities (particularly when caring for those with the most intensive needs), the labour associated with caregiving itself, and emotional, physical and social well-being costs[11,12]. When accounted for properly and in full, the costs of providing long-term care may be more alarming.

 

To what extent do older people need society to provide financial support?

In addition to worries regarding the costs of providing health and long-term care to older people, there is a perception that older people are “dependent” on the financial support of younger people who are in paid work. Some societies may be reluctant to pay for older people’s care or more generally, to finance their consumption, raising important questions about who actually bears the costs of supporting older people.

It is well established that the commonly used old-age dependency ratio (also referred to as a “support ratio”) is flawed and produces a misleading, if not wholly inaccurate picture of the overall financial burden associated with older populations. For example, although the support ratio is typically expressed by comparing the size of the population above a fixed-age threshold relative to the size of the population below, the fixed-age threshold is meaningless in the context of understanding who is and is not dependent. Often age 65 is used to loosely reflect retirement age, while in fact there is considerable variability in terms of normal retirement ages (i.e. the official age at which an individual can retire with a full pension) and average effective retirement ages (i.e. the age of exit from the labour force), both across countries and within countries across time, as well as between men and women. For example, according to the most recently available OECD data, in South Korea, men work on average 11.0 years beyond their normal retirement age, whereas in Slovenia men leave the labour force on average 5.4 years before their normal retirement age. Women in South Korea work 11.2 years longer while women in Poland leave the labour force 7.2 years before normal retirement. Data from 1970 to 2014 suggest that across OECD countries, people have been leaving the formal labour force at progressively earlier ages over time, with a slight reversal to that trend in recent years[13]. In reality, whatever age threshold is chosen for the support ratio, will still mask the fact that many older people remain in the workforce, particularly in low-income countries, and many people above the age threshold who are not in the workforce are economically independent.

Alternative approaches to the support ratio attempt to more properly account for changes in population health and disability, and for changes in the number of consumers and producers in the population[14,15]. These indicators suggest population ageing will create significantly fewer challenges with respect to the share of dependent population; for example, estimates from the United Kingdom suggest that while the old-age dependency ratio will increase from 27% (2005-10) to 41% (2045-50), the adult disability dependency ratio will stay unchanged at 10% during the same time period[14].

Additionally, while consumption expenditures do increase at older ages in many countries, consumption of older people itself is paid for in a variety of ways, including through continued work, assets (e.g. savings and investments), pensions, family support and other private transfers and public transfers (e.g. health and long-term care). In Europe, data from the National Transfer Accounts indicate that the majority of consumption among those over age 65 is funded by public transfers funded in part by taxes generated from labour income, however a non-negligible share of consumption in many countries is self-funded, for example through savings and assets, further highlighting the self-sufficiency of many older people.

 

How do older populations benefit the economy and society?

Although much of the focus related to older people is with reference to the costs of caring for and supporting them, there are also concerns that population ageing will contribute on its own to economic slowdown as the share of the retired population increases. However there is great scope for older people to contribute meaningfully to society and the economy in a number of ways, particularly if they are healthy and able to remain active.

First, while many people leave the paid labour force around their 60s, others still do remain in paid work, either by choice or because pressures on pension systems have led to increases in pension ages. Those who do remain in paid work may be viewed as less productive than their younger counterparts, however evidence suggests that worker productivity naturally varies over the life course for reasons like accumulation of experience over time, changes in skill needs of the workforce, and changes in mental and physical capabilities[16-18]. For some occupations, such as those requiring intensive manual labour, it is unsurprising that older people would be likely to experience declines in output, whereas jobs requiring less physical exertion may benefit from additional years of experience where skills continuously improve with age.

There are of course important questions with regards to the health implications of delaying retirement until older ages. Some studies find that retirement is beneficial for subjective health measures, such as mental health, though there is only limited evidence of effects on physical health[19,20] . Early retirement is often associated with declines in cognitive function, suggesting that supporting retirement at older ages, among those who are able and willing to continue to work, may promote cognitive function later in life[21-23]. However disentangling causal effects of retirement remain challenging.

Second, there are many unpaid older workers (as well as paid workers who also take part in some additional unpaid work) producing outputs that can be seen as having economic or social value. To understand how productivity (as well as the sustainability of the welfare state) is affected by demographic change, it is important to take stock of these non-market-based outputs. One of the most relevant forms of unpaid work is informal caregiving. We find using data from the European Social Survey that including informal carers (adjusted for full-time equivalency) would have a substantial effect on employment rates of older people (Figure 1). For example, among the population 55+ in Portugal, including informal carers would have increased the employment rate by nearly 13 percentage points in 2014. We also note that methods which aim to monetize unpaid informal caregiving demonstrate its considerable economic value; a study in Spain, for example, found that the total monetary value of informal caregiving ranges from approximately 2-6% of GDP[24].

Figure 1. Participation in paid employment and full-time equivalent (FTE) informal caregiving among the 55+, selected European countries

Source: Author’s calculation based on ESS 2014.

Note: Sorted by size of workforce in informal caregiving.

 

Third, ageing populations can also indirectly lead to economy-wide productivity growth in the future as their savings and assets translate into increased capital investment. This, particularly in the presence of slower labour force growth and lower fertility, would lead to increased capital per worker and greater productivity[25]. Researchers find that health, among other factors, is a key predictor of asset accumulation: people who are in poor health accumulate fewer assets during their life course because they have shorter life expectancies, lower earnings, and higher out-of-pocket health care costs[26].

Lastly, while older people may contribute less towards the public sector than working-age people on average, older people may finance a considerable portion of the consumption of others through taxation. Older people who are not in paid work continue to play a role in public revenue generation through consumption taxes (e.g. VAT or sales tax) as well as though taxes on non-labour income and assets (e.g. property). Tax revenues generated from purely non-income sources (i.e. non-labour, but also not including forms of income like capital gains which may be earned by older people) comprise around 30 to upwards of 50% of tax revenues in OECD countries, although it is difficult to say what share of this is actually generated from older people.

 

How can policymakers minimize unwarranted costs and maximize benefits of older people?

The health care and long-term care costs of older people, as well as the ability of older people to contribute meaningfully to society and the economy are dependent on a number of factors. Undoubtedly, health and functional ability are of utmost importance. Healthy older people require less intensive and expensive care, they are able to engage in paid or unpaid work if they choose to do so, and they even accumulate greater asset wealth than comparable unhealthy people. Likewise, policies and strategies that control care costs and promote the ability of older people to contribute can be effective to ensure population ageing does not lead to undue economic pressures.

Interventions to support health and activity at older ages include those that delay the onset and progression of disease, as well as those which prevent or delay care dependency[27,28]. Policies which reduce smoking and harmful alcohol consumption have been shown to be particularly effective at improving health[29]. These behavioural changes can have important health effects even if they do not occur until older ages. For example, there is good evidence that those who quit smoking at age 65 live longer than those who continue to smoke[30].

Strategies to prevent or delay the progression of dependency may help keep costs under control and allow older people to remain active in society. A key focus to prevent dependency should be on preventing cognitive decline, where there is some evidence that taking a multidomain approach can improve or maintain cognitive function[31]. Other interventions to prevent or reduce frailty, such as resistance training or promoting physical activity at older ages, have also been shown to be effective[32,33].

There has also been widespread interest in new models of care delivery to help control health and long-term care costs, particularly given the complex care needs of older populations. Identifying which types of innovative service delivery models offer high quality care and value for money remains challenging. There is now good evidence that supporting better treatment and care choices near the end of life can reduce the use of unnecessary treatments and tests, lower costs and improve the experiences of patients and caregivers and in some cases, this can also achieve longer survival, particularly when patients have complex multimorbidity[34-36].

Further, while the most straightforward approach to keep people in the paid workforce for longer may be to raise pension ages, research shows how doing this in isolation negates the possibility that some older people may not be healthy enough to continue working productively, and may seek alternative pathways to exit the labour market anyway[37]. As such, health systems play an important role to support an older workforce. On the unpaid work side, strategies that support informal caregivers through training or by providing cash for care have been shown to be effective to reduce caregivers’ stress and may also improve the quality of care itself[38]. Lastly, given the changes in labour markets which accompany population ageing, there are likely to be changes in the ability to generate public revenues especially in systems that rely heavily on payroll contributions. With this in mind, health and long-term care financing systems may need to diversify their sources of revenue if they are to continue to generate sufficient, stable revenues.

 

Conclusion

The evidence presented in this overview suggests that population ageing does not present inescapable economic challenges. Rather, much of the rhetoric with regards to the costs and benefits associated with population ageing is not evidence based. Institutional and policy responses both within as well as outside the traditional health and care sectors are likely to play a crucial role in determining how economies and societies are affected by population ageing. Many economic implications of population ageing are likely to depend on factors such as health and long-term care delivery and financing, but also on non-health system factors like the retirement age and how much older people in the workforce are paid in comparison to younger people. These areas and more are topics which we will be investigating in detail in the European Observatory’s series on the Economics of Healthy and Active Ageing.

 

References

  1. Bloom, D.E., D. Canning, and G. Fink, Implications of population ageing for economic growth. Oxford Review of Economic Policy, 2010. 26(4): p. 583-612.
  2. European Commission, The 2015 Ageing Report: Economics and budgetary projections for the 28 EU Member States (2013-2060), 2015: Brussels.
  3. Rechel, B., et al., Ageing in the European Union. Lancet, 2013. 381(9874): p. 1312-22.
  4. Reinhardt, U.E., Does the aging of the population really drive the demand for health care? Health Aff (Millwood), 2003. 22(6): p. 27-39.
  5. Zweifel, P., S. Felder, and M. Meiers, Ageing of population and health care expenditure: a red herring? Health Econ, 1999. 8(6): p. 485-96.
  6. McGrail, K., et al., Age, costs of acute and long-term care and proximity to death: evidence for 1987-88 and 1994-95 in British Columbia. Age Ageing, 2000. 29(3): p. 249-53.
  7. Riley, G.F. and J.D. Lubitz, Long-term trends in Medicare payments in the last year of life. Health Serv Res, 2010. 45(2): p. 565-76.
  8. Aldridge, M.D. and A.S. Kelley, The Myth Regarding the High Cost of End-of-Life Care. Am J Public Health, 2015. 105(12): p. 2411-2415.
  9. Colombo F, L.-N.A., Mercier J, Tjadens F,, Help wanted? Providing and paying for long-term care, 2011, OECD: Paris.
  10. Pickard, L., The supply of informal care in Europe, 2011, ENEPRI Research Report No. 94.
  11. Lilly, M.B., A. Laporte, and P.C. Coyte, Labor market work and home care's unpaid caregivers: a systematic review of labor force participation rates, predictors of labor market withdrawal, and hours of work. Milbank Q, 2007. 85(4): p. 641-90.
  12. Fast, J.E., D.L. Williamson, and N.C. Keating, The Hidden Costs of Informal Elder Care. Journal of Family and Economic Issues, 1999. 20(3): p. 301-326.
  13. OECD, Ageing and Employment Policies - Statistics on average effective age of retirement 2016.
  14. Sanderson, W.C. and S. Scherbov, Remeasuring Aging. Science, 2010. 329(5997): p. 1287-1288.
  15. Lutz, W., W. Sanderson, and S. Scherbov, The coming acceleration of global population ageing. Nature, 2008. 451(7179): p. 716-719.
  16. Borsch-Supan, A. and M. Weiss, Productivity and age: Evidence from work teams at the assembly line. Journal of the Economics of Ageing, 2016. 7: p. 30-42.
  17. Disney, R., Can we afford to grow older? A Perspective on the economics of aging. MIT Press, Cambridge: Mass., 1996.
  18. Behaghel, L., E. Caroli, and M. Roger, Age-biased Technical and Organizational Change, Training and Employment Prospects of Older Workers. Economica, 2014. 81(322): p. 368-389.
  19. Johnston, D.W. and W.S. Lee, Retiring to the good life? The short-term effects of retirement on health. Economics Letters, 2009. 103(1): p. 8-11.
  20. Mein, G., et al., Is retirement good or bad for mental and physical health functioning? Whitehall II longitudinal study of civil servants. J Epidemiol Community Health, 2003. 57(1): p. 46-49.
  21. Mazzonna, F. and F. Peracchi, Ageing, cognitive abilities and retirement. European Economic Review, 2012. 56(4): p. 691-710.
  22. Rohwedder, S. and R.J. Willis, Mental Retirement. Journal of Economic Perspectives, 2010. 24(1): p. 119-138.
  23. Clouston, S.A.P. and N. Denier, Mental retirement and health selection: Analyses from the US Health and Retirement Study. Soc Sci Med, 2017. 178: p. 78-86.
  24. Oliva-Moreno, J., L.M. Pena-Longobardo, and C. Vilaplana-Prieto, An estimation of the value of informal care provided to dependent people in Spain. Appl Health Econ Health Policy, 2015. 13(2): p. 223-31.
  25. Lee, R., A. Mason, and N. Network, Is low fertility really a problem? Population aging, dependency, and consumption. Science, 2014. 346(6206): p. 229-234.
  26. Poterba, J.M., S.F. Venti, and D.A. Wise, The asset cost of poor health. Journal of the Economics of Ageing, 2017. 9: p. 172-184.
  27. Doyle, Y.G., M. Mc Kee, and M. Sherriff, A model of successful ageing in British populations. European Journal of Public Health, 2012. 22(1): p. 71-6.
  28. Doyle, Y., et al., Meeting the challenge of population ageing. BMJ, 2009. 339: p. b3926.
  29. McDaid, D., F. Sassi, and S. Merkur, eds. Promoting Health, Preventing Disease: The economic case. 2015, Open University Press.
  30. Taylor, D.H., Jr., et al., Benefits of smoking cessation for longevity. Am J Public Health, 2002. 92(6): p. 990-6.
  31. Ngandu, T., et al., A 2 year multidomain intervention of diet, exercise, cognitive training, and vascular risk monitoring versus control to prevent cognitive decline in at-risk elderly people (FINGER): a randomised controlled trial. Lancet, 2015. 385(9984): p. 2255-63.
  32. Puts, M.T.E., et al., Interventions to prevent or reduce the level of frailty in community-dwelling older adults: a scoping review of the literature and international policies. Age Ageing, 2017. 46(3): p. 383-392.
  33. Cadore, E.L., et al., Effects of Different Exercise Interventions on Risk of Falls, Gait Ability, and Balance in Physically Frail Older Adults: A Systematic Review. Rejuvenation Research, 2013. 16(2): p. 105-114.
  34. May, P., et al., Prospective Cohort Study of Hospital Palliative Care Teams for Inpatients With Advanced Cancer: Earlier Consultation Is Associated With Larger Cost-Saving Effect. Journal of Clinical Oncology, 2015. 33(25): p. 2745-U47.
  35. Temel, J.S., et al., Early palliative care for patients with metastatic non-small-cell lung cancer. N Engl J Med, 2010. 363(8): p. 733-42.
  36. May, P., et al., Palliative Care Teams' Cost-Saving Effect Is Larger For Cancer Patients With Higher Numbers Of Comorbidities. Health Aff (Millwood), 2016. 35(1): p. 44-53.
  37. Staubli, S. and J. Zweimuller, Does raising the early retirement age increase employment of older workers? Journal of Public Economics, 2013. 108: p. 17-32.
  38. Courtin, E., N. Jemiai, and E. Mossialos, Mapping support policies for informal carers across the European Union. Health Policy, 2014. 118(1): p. 84-94.

Population ageing: The driving force of change

Marc Carreras
Research Group on Health Services and Health Outcomes (GRESSIRES,
Serveis de Salut Integrats Baix Empordà (SSIBE), Spain and University of Girona, Spain
Email: marc.carrerasp@udg.edu

 

The authors analyse the societal impact of population ageing from a broad perspective. A relevant aspect of this paper is to emphasise the contributions of older people, and not just on the economic burden of ageing. In order to address current epidemiologic and demographic challenges, Cylus et al. propose a number of health policies and strategies.

On the side of costs, at the end of the last century Zweifel et al. [1] questioned the idea of age as the main driver of healthcare expenditure. In words of these authors, the relationship between age and healthcare expenditure is simply a red herring, a notion that actually distracts attention from the relevant issue at hand. In summary, they stated that the positive association between age and healthcare expenditure is because of increasing age‐specific mortality and the high cost of dying. The strong implication is that an increasing share of older people may contribute much less to the future growth of the healthcare sector than previously believed.

Moreover, recent studies demonstrated that healthcare expenditure at the end of life mainly depends on the individual health status [2]. In other words, sex, age and proximity to death behave as red herrings if proper information on the individual health status is considered. These new findings reinforced the idea of healthy ageing as one of the building blocks to mitigate the expansion of healthcare expenditure.

On the side of benefits, unpaid work provided by elder caregivers or the financial contribution to the public sector through taxation are two examples of contributions from older people. However, an essential idea emerges from the analysis of Cylus et al., as well as from the related literature: the wide spectrum of societal benefits attributed to the elderly can be expanded by promoting a healthy and active ageing. The implication is obvious; the design of interventions and strategies to prevent physical and cognitive decline should be included among the essential objectives of healthcare policies.

Innovative forms of service delivery play an increasingly important role in the prevention and promotion of health. Integrated care, home care and other new models of care delivery may considerably help to contain the progression of a disease. At the same time, these new models are efficient in providing care to frail patients, people with complex care needs or multiple chronic conditions.

Overall, considering population ageing as an unavoidable source of economic burden is a partial image of reality. Elder people provide well-known benefits to the society, but most important, the demographic change can be viewed as the driving force conducting innovation and promoting efficiency throughout the traditional health care sector.

Finally, two issues should be in the agenda of decision makers: first, to sustain research on the demography and epidemiology of health and ageing. Good initiatives are already available [3,4]. And second, to promote the improvement of long-term care information systems. Without improvement on data and knowledge about what works, it will be difficult to define the appropriate policies to address the challenges resulting from an ageing population.

References

[1] Zweifel P, Felder S, Meiers M (1999). Ageing of population and health care expenditure: A red herring? Health Economics, 8:485–496.

[2] Carreras Carreras M, Ibern P, Inoriza JM (2018). Ageing and healthcare expenditures: Exploring the role of individual health status. Health Economics, 1–14. https://doi.org/10.1002/hec.3635

[3] OECD (2017). Preventing Ageing Unequally, OECD Publishing, Paris. http://dx.doi.org/10.1787/9789264279087-en

[4] SHARE - Survey of Health, Ageing and Retirement in Europe (http://www.share-project.org/)


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Editores del boletín: Cristina Hernández-Quevedo (c.hernandez-quevedo@lse.ac.uk) y Jorge Mestre Ferrándiz (jormesfer13@gmail.com).

Editora de redacción: Cristina Hernández-Quevedo (c.hernandez-quevedo@lse.ac.uk).

Han colaborado en este número: Elena Arroyo Borrell, Anthony Culyer, Jonathan Cylus, Josep Figueras, Leticia García Mochón, Ariadna García Prado, Jaime Ginestal, Ana Luisa Godoy Caballero, Jordi Gol, Guillem López-Casasnovas, Juan del Llano, Charles Normand, Vicente Ortún, Juan Francisco Orueta Mendia, Salvador Peiró Moreno, Jaime Pinilla, Marta Trapero Bertran.