Scandinavian Working Papers in Economics

HERO On line Working Paper Series,
Oslo University, Health Economics Research Programme

No 2013:9: How does end of life costs and increases in life expectancy affect projections of future hospital spending?

Hans Olav Melberg () and Jan Sørensen
Additional contact information
Hans Olav Melberg: Department of Health Management and Health Economics, Postal: HERO / Department of Health Management and Health Economics, P.O. Box 1089 Blindern, NO-0317 Oslo, Norway
Jan Sørensen: University of Southern Denmark

Abstract: This article examines the extent to which differences in life-expectancy are associated with shifts in average hospital costs for different age groups. The size of the shift is important because it makes a large difference to the importance of demographic factors when projecting future health expenditures. The effect of increases in life expectancy on the cost curves is identified by comparing two countries with different life expectancies, but which are very similar on other variables like culture, technology and health systems (Norway and Denmark). Using data from the National Patient Registries the paper compares the ratio of average spending on individuals who die and individuals who survive in different age groups in these two countries. After controlling for cohort, the best fit between the age related cost curves is achieved when the cost curve in the country with a two year longer life expectancy is shifted by two years. For instance, seventy year olds in the country with the longest life expectancy have an everage cost ratio that is comparable to sixty-eight year olds in the country with the shorter life expectancy. This suggests that increases in life expectancy are associated with shifts in the cost curves and that the shift is proportional to the shift in life expectancy.

Keywords: Hospital expenditures; ageing; life expectancy

JEL-codes: C13; H51; I12; I13

25 pages, December 20, 2013

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