The Future Costs of Health Care in Ageing Societies: Is the Glass Half Full or Half Empty?

Abstract

There is great concern that modern rich nations will not be able to afford the future health care costs of ageing societies. Cohort change-based estimates of population ageing alone suggest some increases in future costs, even without differentially higher growth in underlying, residual ‘technology related’ costs. Accounting for these costs pushes the future costs much higher. However, these estimates of cost ignore both the increased willingness and ability of the current and future elderly to pay these costs and the likely future benefits of these expenses in terms of increased health status, improved quality of life and increased longevity from new and better medical treatments, pharmaceuticals and the like. Drawing on recent examples of the net benefits of pharmaceuticals from the United States and other nations, we argue that these benefits also need to be taken into account. We also suggest that once a socially determined level of health care benefits are provided by the public sector, the elderly should be able to privately pay for additional treatments which might also have high health benefits. The primary public policy issues are two. First, avoid the unnecessary and inefficient costs of excessive technological medicine (where waste is rampant; costs are below benefits and, therefore, the marginal value of treatment is low). Second, directly address the question of the distribution of the costs of new medical advances and existing cost-effective treatments for the elderly by determining how much of these costs should be borne by public programmes (financed by workers or from general revenues) vs. how much the low income elderly themselves can and should pay for. In this light, plans to subsidize the cost of treatments based on ability to pay are important policy considerations for future cohorts of older persons.