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Demographic Uncertainty and Health Care Expenditure in Spain

Namkee Ahn (), Juan García López () and José Herce ()

No 2005-07, Working Papers from FEDEA

Abstract: Usual projections of health care expenditure combine age-sex profiles of health expenditure and scenarios of population projection. However, it has been shown repeatedly that both age-sex specific health expenditures and the population structures in the future are highly uncertain and most projections turned out wrong. Therefore, the projections based on the traditional approach are often unhelpful in evaluating future health care expenditures. In this project we try to improve upon the existing literature by incorporating uncertainties in population projection and future age-sex specific health expenditure. Combining the stochastic population projection with age-specific health expenditure we obtain probabilistic distributions of health expenditure. The median projection shows that public health expenditure will increase by about 40% during the next 47 years, that is, an average annual increase of 0.74%. There is a 10% chance that the expenditure will increase by more than 66% during the projection period, which corresponds to an annual increase of 1.1%. At the optimistic side the total public health expenditure will grow only by 17% (0.35% annual) with a 10% probability. The main part of the increase in total expenditure is driven by the increase in average per-capita expenditure due to ageing. The average per-capita expenditure increases by 33%, from 980 in 2004 to 1307 euros in 2050. If we assume that real per-capita public health expenditure increases by the same rate as per-capita GDP, the share of the public health expenditure in GDP will increase from 5% today to 6.7% in 2050, solely due to demographic change. One factor that could reduce the expenditure pressure in the future is that with decreasing mortality rate there will be fewer people in their last year of life. This, combined with the fact that a major part of health expenditure is driven by decedents, could reduce future health expenditure. Our estimation suggests that distinguishing hospital costs by survival status could reduce somewhat (by about 8%) total hospital expenditure in 2049

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