Terminal costs, improved life expectancy and future public health expenditure

This paper presents an empirical analysis of public health expenditure on individuals in Denmark. The analysis separates out the individual effects of age and proximity to death (reflecting terminal costs of dying) and employs unique micro data from the period 2000 to 2009, covering a random sample of 10% of the Danish population. Health expenditure includes treatment in hospitals, subsidies to prescribed medication and health care provided by general practitioners and specialists and covers about 80% of public health care expenditure on individuals. The results confirm findings from previous studies showing that proximity to death has a significant impact on health care expenditure. However, it is also found that cohort effects (the baby boom generation) as well as improvements in life expectancy have a substantial effect on future health care expenditure even when proximity to death is controlled for. These results are obtained by combining the empirical estimates with a long term population forecast. When life expectancy increases, terminal costs are postponed but the increases in health expenditure that follow from longer life expectancy are not as large as the increase in the number of elderly persons would suggest (due to "healthy ageing"). Based on the empirical estimates, healthy ageing is expected to reduce the impact of increased life expectancy on real health expenditure by 50% compared to a situation without healthy ageing.