Ageing and Health Care Costs

1. Ageing and Health Care Costs Timothy M. Smeeding Director, Center for Policy Research Maxwell School, Syracuse University for ACERH Policy Forum Brisbane, Australia February 22, 2008

2. I. Openers • Two Components of “Health Care” to Examine: Acute (‘hospital, doctor, drugs’) Care and Chronic (‘long term’) Care • Acute Care Drivers • Chronic Care Drivers • USA Bottom Line (next page): Driving Forces Are Not Ageing per se for Acute Care Costs, but… • Ageing is Important for Chronic-LT Care Costs

4. Sources of Growth in Projected Federal Spending on Medicare and Medicaid

5. II. Sources of Well-being in Old Age • “Residential and Consumptive Living” • “Medical Care” (Acute Care and Medicine) • “Preventive Care” (Health Promotion) • “Assistive Services” (Care Giving) • “Caring and Empathy” (Priceless) Focus here is #2 and #4 only #1 Not a big Issue in USA, nor in Australia #3 and #5 are important but beyond my expertise

6. III . Financial Context and Solutions for Acute Care Costs • US and Oz Cost Pressure Sources: Technology and Treatments (Figure 1; Table 1) • The Fiscal Burden is Health Care (Acute and LTC), Not Social Retirement (Figure 2) • Discussion

7. Table 1: Public Expenditure Health Care Cost Growth Country Cost Level Cost Growth (Per cap) Rate (‘95-’05) USA $6,401 3.7% Australia $3,218 4.8%

8. Figure 1. Federal Spending for Medicare and Medicaid (as percent of GDP) Source: Congressional Budget Office. 2003. The Long-Term Budget Outlook. CBO: Washington, D.C

9. Figure 2. Medicare, Medicaid (Federal only) and Social Security Outlays (as percent of GDP) Social Security Medicare Medicaid 30% 25% 20% 15% 10% 5% 0% 1962 1969 1976 1983 1990 1997 2004 2011 2018 2025 2032 2039 2046 2053 2060 2067 2074 Source: 2004 Annual Report of the Social Security and Medicare Boards of Trustees and data underlying the Congressional Budget Office. 2003. The Long-Term Budget Outlook. CBO: Washington, D.C

10. 3. Discussion • Costs are Rising for Acute Care, Driven by Greater Use and Availability of High-Tech Medicine, Increased Service Use and New and Better Prescription Drugs • WHY? Higher Incomes and More Beneficial Treatments—Only in Part Related to Ageing • Policy Issues: - Greater Cost Effectiveness - Who Should Pay as Big Debate: Private-public dimensions (US estimates) Generational transfers (public financing) Ability to pay (GWB proposal)

11. IV. How Does USA Pay for Chronic-LTC Now? US Perspectives • Money and Family (Donated) Care (Figures 7, 8) • Trends by Source of Financing: Medicaid vs. Medicare (Figure 9)

12. Figure 7. Estimated Percentage Shares of Spending on Long-Term Care for the Elderly, 2004

13. Figure 8. Long-Term Care Expenditures for the Elderly, by Source of Payment, 2004

14. Figure 9. Medicaid Long-Term Care Expenditures for Elderly Beneficiaries, Fiscal Years 1992 to 2004

15. C. What About Future Costs? • USA : LTC Costs will grow from $195 billion (2.0% GDP) to $540-769 billion (2.3-3.3% GDP) by 2040 & Similar Forecast for Oz • Why? - Ageing in 85+ groups - Fewer Children with Less Free Time • How Can We Manage This?

16. V. LTC Future Financing • Public Sector Support will Likely be Weak, BUT Private Wealth is Also Rising • Role and Value of the Home is Increasing for Aged USA: 80+ Percent Owners, ¾ with Equity of $50,000 or Higher Australia: 85+ Percent Owners, ¾ with Equity of $100,000 or Higher

17. V. Future Financing, Cont’d • How to Turn Housing Wealth into Assistive Services? • Home Equity Based Loans • Recapture of Costs Post Death

18. VI. Conclusions • Prisoners of our Own Success: Healthy, Continued Ageing is GOOD! • Acute and Chronic Costs can be Separated and Dealt With • Ageing Better Means More Health Care Services of Both Types • Policy Needs to Recognize the Blessings and Then How to Accommodate the Needs