What Causes Errors in Projections of Medical and Long-term Care Expenses?

Yuki Demizu, Daizo Kojima and Takahide Koike
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Yuki Demizu: Researcher, Policy Research Institute, Ministry of Finance
Daizo Kojima: Associate Professor, Institute of Economic Research, Kyoto University
Takahide Koike: Former Senior Economist, Policy Research Institute, Ministry of Finance

Public Policy Review, 2018, vol. 14, issue 4, 563-584

Abstract: While medical and long-term care costs in Japan are expected to continue to rise in the future, it is not clear to what degree we can estimate this increase using current projecting methods. Therefore, in this study, we hypothetically estimate medical and long-term care expenses based on past data, quantitatively analyzing discrepancies from actual results and the primary factors contributing to increases over time. In estimating medical and long-term care expense, we use a projection method that multiplies the recipient population by the cost per capita. In addition, it is assumed that medical expenses per capita rise at the same rate as nominal GDP per capita and long-term care expenses change at the same rate as nominal wages per capita. Then, projection errors are broken down into “recipient population factors” and “per capita cost factors.” The results of our analysis indicate that, while increases in expenses due to changing population structure make up a large proportion of increases in total medical and long-term care expense, most of these costs are projectable and thus, the projection error is not large. On the other hand, for per capita expenditure, there is a divergence between estimates of growth based on economic indicators and actual results, which is a factor causing underestimates. Of these increases in medical expenses and long-term care expenses during the analysis period, the proportion of error due to this per capita cost was 26% for medical expenses and 28% for long-term care expenses.

Keywords: Medical expenses; Long-term care expenses; Projection errors; Factor analysis (search for similar items in EconPapers)
JEL-codes: I13 I15 (search for similar items in EconPapers)
Date: 2018
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