Ageing and healthcare costs in Australia: a case of policy-based evidence?

It is true that older people use more healthcare than younger people and that the proportion of older people in the population is increasing. However, it is possible that aggregate health costs are determined by factors that are independent of the age structure of the population, and that the age structure merely defines the distribution of predetermined expenditures.8 International comparisons support this hypothesis.

More specifically, across the countries belonging to the Organisation for Economic Co-operation and Development (OECD), ageing of the population is not related to health expenditure as a proportion of GDP (Pearson’s correlation coefficient, 0.11; 95% CI, − 0.29 to 0.48; P = 0.59). The Box shows health expenditure by proportion of population aged 65 years or older in 26 OECD countries. All the countries in the lower right-hand quadrant have populations with a greater proportion of older people than in Australia, but they spend less on health as a percentage of GDP. Most have similar, if not better, health outcomes, as measured by life expectancy. For example, in the year 2000, 17.3% of the Swedish population were aged 65 years or older, but that country spent only 8.6% of its GDP on health. This is less than the 9.3% spent by Australia in 2001–02, when only 12.7% of the population was 65 years or older. The proportion of the Australian population aged 65 years or older will not exceed 17% until the year 2020.

Richardson and Robertson published projections for Australia for 1995–2051.8 They concluded that the effect of future ageing on health expenditure in Australia would be so small that, in the absence of other factors, the size of the health sector would diminish relative to gross domestic product (GDP). Cooper and Hagan, in a 1999 report for the Australian Government Department of Health and Aged Care, reached a similar conclusion:

Badham also found that ageing will have only a small effect on health expenditure.10

Standard methods were used in each of these three recent projections: current expenditures, stratified by age and sex, were multiplied by official projected populations from the Australian Bureau of Statistics and summed to obtain future total expenditure. The Badham analysis also examined the effect of extrapolating per-capita expenditure trends forward in time. This had the effect of reducing the influence of ageing on future expenditure.10

The Richardson–Robertson and Badham forecasts were based on age- and sex-specific expenditures for hospital, ambulatory, pharmaceutical, nursing home, and allied health services, as well as capital costs. The Cooper–Hagan forecasts were based on current age- and sex-specific expenditures for the Medicare Benefits Schedule, Pharmaceutical Benefits Scheme and hospital costs.

All three analyses made an adjustment for future gains in life expectancy, sometimes known as Fuch’s effect.15 Proponents of this adjustment argue that such a correction is needed, because the relationship between ageing and healthcare costs is confounded by time to death. That is, even allowing for increasing trends in the elderly population’s use of medications and elective surgery (eg, hip replacement, cataract surgery, angioplasty), an important proportion of healthcare costs are incurred in the last couple of years of life by the process of dying. (The percentage could be as high as 40%.16) Projecting age-specific expenditure rates forward in time and applying them to population projections can be misleading, because the costs of dying are projected onto an age group that is too young. This can be avoided by estimating expenditure not from the number of years since birth (ie, age), but from the number of years to expected death.

The other recent Australian expenditure forecast was published by the federal government in its Intergenerational Report.11 That forecast did not use an adjustment for life expectancy and was based only on direct federal government expenditure (ie, it excluded inter alia state government expenditure on public hospitals). Nevertheless, the findings were consistent with the other forecasts; namely, the Report found that only 10% of growth in federal government health spending over the last decade was attributable to population ageing (see Table 7 on page 36 of the Report).11 (The main drivers for the remaining 90% were pharmaceuticals and diagnostic tests.) Projecting this trend forward in time, on page 38 the Report concluded that “ageing of the population will have only a small effect on spending”.11 (In spite of this finding, the Overview on page 1 of the Report linked fiscal sustainability with widespread participation in private health insurance, justified by a vague reference to population ageing.11)

Recent reports from other developed countries have also found that ageing will have only a small and manageable effect on future healthcare expenditure. For example, a report from the Canadian Institute for Health Information concluded:

Reports from the United States and the United Kingdom have reached similar conclusions.13,14

Even these small, modelled increases might be overestimates, because the period between illness and death may become shorter — resulting in a compression of morbidity — and this could conceivably lead to a decrease in healthcare costs. Data from several developed countries during the 1980s and 1990s have shown increases in the period of disability-free life. For example, in the United States, the proportion of the elderly who were disabled decreased from 26.2% in 1982 to 19.7% in 1999.17 Similarly, the proportion of people in the UK who require help with activities of daily living halved between 1976 and 1991.18 The available data in Australia show a slight increase in disability among the elderly of 0.2% per annum,19 but most commentators think that this is due to better reporting rather than to a real increase.20 In other words, it seems unlikely that the decreases in disability observed in other countries have not also occurred in Australia.

Further, trends in smoking, an important risk factor for several chronic diseases, are enough, on their own, to cast doubt on expenditure forecasts based on current morbidity levels. The youngest of the generation of men for whom the prevalence of smoking was 70% are now older than 65 years. In the medium term, our health system will be dealing with a population of whom fewer than 30% smoked, and this is very likely to translate into substantial healthcare savings.21 If we could reduce the prevalence of smoking to even lower levels, then the long-term trends in expenditure would be even more favourable.22

The evidence above is consistent with a forecast put forward by Fries in 1980.23 He postulated that people would remain healthy for an increasing proportion of their lives, and therefore would need less healthcare at each age. At the end, all systems would fail at once, bringing on a short period of acute illness ending in “natural death”. Under this optimistic scenario, “heroic” medical interventions to stave off death in relatively young older people (say, younger than 80 years) would be required less often. Most people would survive until old age, at which time the process of dying would be relatively inexpensive.

No one can predict the future, but if the available evidence supports Fries’ optimistic scenario, why are we being bombarded with the pessimistic and unlikely scenario of an ever-older and ever-sicker population that will bankrupt our economy?