Growing ranks of elderly add to costs dilemma

Technological change, ageing populations and rising expectations: for health ministers and executives worldwide they are the three furies that bedevil attempts to contain the spiralling cost of care.

“In my experience,” recalls Kenneth Clarke, the highly regarded former health secretary, “at international meetings of health ministers, all they and the other people there ever talk about is how to control costs and they never really seem to find a way to do it.”

All western countries have seen their populations age significantly and the three pressures combined have pushed up costs during the past half century and more.

Nicolaus Henke, head of the London health practice for management consultants McKinsey, flourishes a graph showing that during the past 50 years health spending has outstripped growth in the economy by 2 per cent a year on average in every country in the Organisation for Economic Co-operation and Development.

The trend, he says, is “startling”. Countries occasionally manage to roll back the rate of increase. The US did so briefly in the mid-1990s by putting tighter controls on treatments doctors could use in a drive to raise quality and constrain costs. Other countries have from time to time squeezed budgets or cut them. But the trend always reasserts itself.

If it continues, says Mr Henke, “by 2050 most countries will spend more than 20 per cent of gross domestic product on healthcare. The US will be spending well over 30 per cent”. By 2100, the US health spend would take 97 per cent of national income, the UK’s two-thirds.

“That is difficult to conceive,” says Mr Henke, “but in 1960 most observers would have said that 40 years on it would have been pretty inconceivable that western Europe on average would be spending 9 per cent of GDP on health. But that, of course, has happened.”

The triple pressures prompt apocalyptic predictions. Jonathan Anscombe, head of health of A. T. Kearney’s European health practice, says they create “a perfect storm”, one that will “test the limits of collective funding mechanisms” all around the world.

He predicts that countries will have to restrict tax and social insurance systems to a “core” offering. It will consist chiefly of preventive and primary care services that help restrain costs, along with emergency services and support for the poor, he suggests. Everything else – most non-emergency care, let alone costly end-of-life cancer drugs – will have to be covered by private individual insurance or by out-of-pocket payments. This, he declares, is “inevitable” and “it is hard to see how this can be achieved without making care more unequal”.

But there is another view. For a start, many of the dire predictions rely on believing that existing trends will simply continue. But that assumption ignores the disruptive effect of the unpredictable, which can lower costs as well as raise them.

Dangerous and costly surgery for gastric ulcers, for example, has disappeared, killed off first by a drug that treated the ulcer then by an antibiotic that cured it.

John Appleby, chief economist at the King’s Fund health think-tank in London, illustrates the dangers of extrapolation with a graph showing that if the steady decline in mortality rates in the UK continues, “by about 2039 the UK will be spending about 10 per cent of GDP on health care and nobody will be dying. Somehow, I don’t think that is going to happen,” he remarks drily.

Many analysts are now much less worried about the impact of ageing than they were. For a start, says Richard Saltman, professor of health policy at the Rollins School of Public Health, as with pensions, “you can fundamentally reduce the costs if people work even one, two or three years longer to pay in rather than take out”.

And there is a growing body of evidence that the older generation, on average, is living longer and healthier, not longer and sicker.

Martin McKee, head of research policy at the European Observatory on Health Systems, says there is good evidence from countries including Canada, Germany and the US Medicare system that the high cost of care for the elderly is chiefly the cost of dying.

“A large part of lifetime expenditure on health care occurs in the last year of life and indeed in the last few weeks before death: and it does so regardless of the age at which you die,” he says.

Added to that is tentative evidence that the costs of dying are lower for those who live longest. “This may be because the old are treated less intensively and so incur fewer costs,” Prof McKee says. That may not be entirely explained by age discrimination. Raymond Tallis, former professor of geriatric medicine at Manchester University, has argued that even healthy old people’s bodies become frailer. “So it is possible that the stroke or heart attack that you might have survived with a disability at age 70 will kill you at 90.”

Furthermore, any breakthrough in the treatment of dementia – although none is on the near-horizon – could lower long-term care costs

As people live longer, costs will rise, but not necessarily catastrophically. There are, Professor McKee says, “many myths and misunderstandings” about ageing and technology.

But can nations afford the rising bill? Mr Henke of McKinsey has his doubts, although he notes “the most convincing graph in the whole of social science” is the one that shows the richer a country is, the more it spends on health care.

“Healthcare is a wonderful product,” Uwe Reinhardt, professor of political economy at Princeton, says. “So as we get richer we have bought more of it. And if you ask ‘Can we afford the elderly?’ I say – give me a break. Of course we can afford the elderly.”

Projections of spending on Medicare and Medicaid, the two big US public healthcare programmes, show it will double as a share of gross domestic product to 13 per cent by 2050: a frightening figure to many.

“But how big is the GDP?” Professor Reinhardt asks. “Our real GDP now is about $40,000 per capita and that has been growing for 30 years at 2 per cent a year. Make that only 1.5 per cent to allow for fewer workers and other factors. By 2050 our real GDP will be closer to $80,000 per capita. Take 13 per cent out of that and what is left over?”

The answer is more than $65,000 per head to spend on other things, against about $37,000 today.

How expenditure will split – between public and private, tax and social insurance and costs paid out of pocket by patients – is a question likely to be answered differently in different places. But a world in which healthcare will one day become wholly unaffordable? Not if measures are taken to spend wisely and economies keep growing.

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