The Economics of Aging Population and Healthcare Costs

Populations around the globe are becoming older as a result of increasing life expectancies and declining birthrates, creating many economic challenges for developed nations – especially concerning healthcare costs.

Nation’s with large elderly populations depend on a smaller pool of workers to collect taxes to cover higher healthcare costs, pension benefits and other publicly funded programs. This can create unsustainable financial burdens.

Life Expectancy

Average life expectancy measures the expected years a person should live on average. It can be measured either using period life tables (using observed mortality data) or cohort life tables (projecting future improvements in mortality rates).

Cohort life tables entail predictions about the future and thus can be subject to some level of uncertainty. To reduce this effect, expert judgement must be used when deciding how long historical mortality trends will continue into the future; using these targets, mortality rates per age for both males and females are projected into projected life expectancies and projected life spans are then established.

Rising longevity has contributed to an ever-widening gap between U.S. healthcare spending per capita and that of OECD nations, compounded by recent events like COVID-19 pandemic which reduced lifespans more significantly here. This chart collection compares lifespan and total health expenditures in various OECD nations.

Birth Rate

Birth Rate, or Natality, measures the rate at which live births occur per 1,000 people and can be calculated using vital registration systems, censuses, sample surveys conducted by national statistical offices and other organizations as well as demographic analysis.

As life expectancies increase, so will the share of people aged 65 and over, placing strain on federal programs designed to assist older Americans, such as Social Security and Medicare.

By encouraging healthy lifestyles and providing access to effective methods of family planning, lawmakers could reverse the aging trend. A higher birthrate would reduce costs associated with assistance programs by creating a younger workforce which is better able to maintain them; it would also bring near-term savings in education and healthcare spending because federal programs are distributed according to formulas that include population counts in their allocation formulas.

Mortality Rate

Industrialized countries are discovering that an increasing elderly population is having detrimental economic repercussions for their economies, particularly due to health care needs of elderly. Families caring for them tend to work less hours due to health care needs of elderly family members, thus decreasing labor input and decelerating economic growth.

However, these effects may be moderated. Studies suggest that active older workers can stay longer in the labor force to minimize its negative economic ramifications.

Researchers used panel data from 180 countries between 1990 and 2017 to investigate whether health and disability, measured by years lived with disability (YLDs), can moderate the relationship between population age structure and economic growth. Their study found that mortality and GDP have an inverse association, while income levels had an influence over healthcare spending and mortality rates in each nation studied.

Healthcare Spending

Cost has long been seen as the primary impediment to healthcare provision, particularly in countries with limited resources. Cost is determined primarily by advances in medical technology and rising demand for healthcare services as well as financial out-of-pocket payments by patients (known as out-of-pocket spending – direct expenditure made without formal financing arrangements).

Out-of-pocket health-care spending accounts for most personal health expenditures in the US. By employing the population attributable fraction method, this study estimated that modifiable risk factors account for a large share of this spending (figure 2A). Of all working age adults (15-64 years), high BMI ($109*0 billion with 95% uncertainty interval ranging between 85-128*1), alcohol use ($13*8 billion between 10*8-17*5); and dietary risks ($65-9 billions 95% UI 53*3-633*4) were responsible.

Studies have consistently demonstrated that Americans spend twice as much on health care per person compared to average spending among peer nations; price is the primary driver. This latest research further supports this finding and highlights components of this “excess” spending which may be attributable to high prices.