Health Care Spending: What the Future Will Look Like

Studies | Health

No. 286
Wednesday, June 28, 2006
by Christian Hagist and Laurence J. Kotlikoff


Introduction

Government health care spending in developed countries grew much more rapidly than the economies of those countries over the past three decades. This phenomenon can be explained by answering two questions: How much of health care expenditure growth is due to demographic change (the aging of society)? How much is due to increases in spending on the average beneficiary (at different ages)?2 The distinction is important. Spending levels are determined by government policy, whereas demographics are largely outside government control.

This study uses demographic data from the Organization for Economic Cooperation and Development (OECD) and spending profiles based on the age and health status of beneficiary groups in each country to measure the growth in real (inflation-adjusted) health care spending between 1970 and 2002 in 10 OECD countries: Australia, Austria, Canada, Germany, Japan, Norway, Spain, Sweden, the United Kingdom and the United States. We first explain why health care spending has been rising. We then project the trend of the past 30 years forward to the mid-21st century.3


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