AGGREGATE HEALTH-CARE EXPENDITURE IN EUROPE

Background. While an increasing absolute number of elderly (or any other age group) will inevitably increase total health care expenditure, expenditure per capita will not necessarily increase. No firm conclusion on this point can be drawn from the existing literature. When analysing the determinants of health care spending, a distinction should be made between individual-based analyses (micro-level studies), which are usually restricted to a single country, and analyses based on aggregated health care spending with countries as the unit of observation (macro-level studies). Micro-level studies are often used to make predictions about health care spending, based on assumptions of age-specific utilisation rates, while macro-level studies are used to identify economic, demographic and institutional determinants of expenditure based on historical data. While micro-level studies are based on the demand side alone, macro-level studies allow for both demand and supply factors to be included. Purpose. The main purpose of this paper is to investigate the relationship between ageing and the development in the aggregate health care expenditure in EU countries on a macroeconomic level when economic and institutional variables are included. Model results will be used to extrapolate the total health care expenditure for the next 10 years. Data. Unbalanced panel data from 26 countries covering up to a 24 year period. The countries included were the old 15 EU member countries (EU15) and the 10 new member countries (of which Cyprus and Malta were omitted from the final analysis) plus two anticipated members (Romania and Bulgaria) and one potential member (Turkey). This group is referred to as EU11 in this paper. The data include economic, social, demographic and institutional variables as well as variables related to capacity and production technology in the health care sector. Method. Analyses were made separately for EU15 and EU11 countries. We hypothesise that ageing affects health care expenditures directly as well as indirectly through a political process in which institutional variables in a broad sense are amended due to demand pressure from an ageing population. A sequence of models was estimated in order to examine the impact of ageing as well as the mediating effects of other variables. Results. In both groups of countries, ageing appears to be associated with increasing health care expenditure per capita. The importance of adjusting for confounding variables was evident throughout the exercise. We have estimated semi-elasticities showing the percentage increase in health care spending associated with a 1% unit increase of the population in a given age group. For EU15 countries, we found evidence that the elasticity of health care spending with respect Terkel Christiansen, Mickael Bech and Pascal Nielsen are with Institute of Public Health – Health Economics, University of Southern Denmark. Jørgen Lauridsen is in Department of Business & Economics, University of Southern Denmark. Terkel Christiansen is corresponding author: tch@sam.sdu. dk to the age group 0-5 years is negative. For the age group 65-74 years a positive elasticity was found, while the elasticity for the age group 75+ years was negative. These results were obtained after control for unconditional country differences and a time trend. They are robust towards controlling GDP and other population characteristics, but they lose significance and magnitude when adjustment for health system characteristics was made, indicating that the direct effect of ageing on total health care expenditure is mediated by institutional variables. For the EU11 countries, significantly positive effects for the age groups 0-5 years and 65-74 years were found. A significantly positive effect for the age group 75+ was also found, but this effect turned out to be insignificant when controlling for health system characteristics. In both groups of countries it seems that it is the presence of specific institutional structures and health care technology benefiting old people, rather than the proportion of older people, that governs health care expenditure. While this supports the hypothesis of an indirect effect of ageing through institutional and health care technology variables, this should be interpreted cautiously. Discussion. Our conclusion is that the direct effect of demand for health care due to ageing is very small and insignificant in EU15 countries, whereas there is a positive association in EU11 countries. An apparent association between ageing and expenditure may be explained by income: richer countries have a bigger share of the ageing population and can afford to invest in expensive technology. The distinction between various age groups among the elderly modifies earlier findings by showing the specific effect of age group 65-74 years. The incomplete data with respect to longterm care in total health care expenditures should be taken into account when interpreting the results, in particular for results for the EU11 countries.