Nova workboard

a blog from young economists at Nova SBE

Ageing and health expenditures in Portugal – an overview

On September 14-15, a conference promoted by Fundação Francisco Manuel dos Santos, launched a large debate about how Portugal will be in 2030. One of the topics subject to discussion was ageing and the challenges it poses to the Welfare State. During that weekend, the debate was also extended to the media. As expected, the skeptics appeared and presented ageing as an enemy, responsible for jeopardizing the sustainability of the Welfare State and for uncontrollable health expenditures in the future.

From my point of view, it is impossible to reach those conclusions with such certainty, as far as we are in 2012. The Welfare State is not an unchangeable concept – instead, it is an emanation from society aimed at answering to the most imperative problems concerned with well-being. Therefore, since problems are continuously changing, new challenges require new and more prepared answers.

Why do people tend to easily conclude that ageing will imply more and more resources to be allocated to the health sector? As a starting point, the following graph may provide a hint:

Here, we must recall our first lesson from statistics: correlation does not imply causation. In fact, there is a strong positive correlation between the 2 variables: the weight of population aged more than 65 is growing and public health expenditures have also been growing (and also private expenditures, though not mentioned). The main difference is that public health expenditures have been growing very much faster.  

As predicted by the Grossman model, the older we are the more healthcare we demand. It is also important to recognize that older people cost more to the system – they are more likely to have chronic diseases, cardiac problems, dementia and diabetes, which require longer stays in hospitals. However, the ageing effect is somewhat overvalued, since other factors have contributed more decisively to health expenditures growth. Barros (1998) confirms that ageing is of less importance for healthcare expenditures than usually pointed out – his estimates suggest that ageing has no explanatory power on healthcare expenditures.[1] Since ageing has a strong impact on other aspects of the Welfare State, mainly retirement pensions, there is a common extrapolation to healthcare services of this demographic pressure. Nevertheless, at the same time, urban middle-classes with rising incomes, new needs and preferences, also originated a fast-growing demand for healthcare. But, more importantly, we have the role of cost drivers: medical and technological advances (new equipment and better OR conditions) have increased costs and healthcare services have also become more expensive (inflation).

In my opinion, the impact of ageing population alone will not be responsible for uncontrollable health expenditures in the future. Furthermore, we cannot also forget that devoting more resources to the health sector can potentially increase life-expectancy. This also means that in the medium/long-run, since individuals live longer, they will tend to invest more in education and increase the stock of human capital, with a likely positive impact on economic growth. However, more population above 65 also means the possibility of lobbying in order to change government policies in favor of their interests: withdrawing resources from youth (e.g.: sports and education) to employ in a higher budget for healthcare. Which effect will prevail? Well, in 2030, I will surely have a better answer!

By Tiago Silva

[1] Barros, P.P., 1998, “The black-box of health care growth determinants”, Health Economics, 7(6). 533-544.


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Why is health care on the spotlight in the race for the US 2012 presidential elections?

As the United States (US) presidential elections of 2012 approaches, the health care debate has been brought to the spotlight again. Among others, the discussion is concerned with universal coverage, expenditure management, insurance reform and the fundamentals behind provision and funding. But why is the reform of the US health care system so important to be on the centre of the presidential election’s debate?

Firstly, it is of uttermost important to describe one main characteristic of the US health system. In this country, although health care provision is not a synonym of health care insurance – the population has the right to a minimum level of treatment in a life endangered situation regardless of their ability to pay – the fact is that most of health care provision requires patients to have private or public health insurance. However, many Americans do not qualify for public health insurance coverage and either cannot afford, choose not to purchase or do not qualify for private health insurance. As a whole, US Census Bureau reported that 16,3% of Americans (49,9 millions) were uninsured in 2010, which shows the fragility and inequity of such a health care system.

Secondly, there is the question of excessive spending on health care. As graph 1 shows, health care expenditures as a percentage of GDP in the US have been growing fast from 1960 to 2009 passing from 5,1% to 17,7%, always above the OECD average and representing the highest share among OECD countries. The USA was also above the average of OECD in health spending per capita (in US$ purchasing power parity) from 1960 to 2009. As shown, health spending per capita in the US has grown promptly in this period, from 148 US$ to 7990 US$.


These values, quite impressive by themselves, lead researchers to claim that the US is not efficient in the application of its health care resources. For instance, a study by the Institute of Medicine of September 2012 claimed that as of 2009, 750 US$ billion spent on the US health care system were wasted mainly on unnecessary services and that they could have provided instead health insurance coverage for 150 million workers.

Taking this into account, it is understandable why during its mandate Barack Obama has insisted on a health care reform approved on March 2010, the Patient Protection and Affordable Health Care Act (PPACA). This includes a number of health-related provisions for the next four years aimed at providing affordable health insurance to all US citizens. In the 2012 elections, Obama is campaigning against his rival Mitt Romney by strongly defending the PPACA reforms and this has proven to be so successful that Romney has already publicly supported some of PPACA’ measures, when before he stood against them.

Who will win 2012 presidential elections in the US? Nobody knows. Nevertheless, the health care discussion will certainly continue in the US.

By: Ana Rita Borges