The Changing Elderly Demographic and The Cost of Health Care

As indicated by Barber, the increased life expectancy for Canadians presents a significant challenge to the delivery of health care. The primary demand factors which are commonly identified as determinants of rising health care costs are insurance and an aging population.

1 Having more insurance allows people to consume more health care, and being older (therefore, presumably more in need of health care) predisposes them to do so. This paper will examine the relationship between the changing elderly demographic and the cost of health care, including institutionalized care.It will also discuss alternatives in restructuring the system to accommodate this population trend. II. Aging Escalates Health Care Costs – Substantiating this Claim The following elementary equation shows the basic calculation of total expenditure: Equation II. 1 E x N = Eold x Nold + Eyoung x Nyoung where E represents per capita expenditure and N represents population; the subscript young indicates the under age 65 demographic the subscript old indicates the over age 65 demographic (yellow book)In describing the relationship between aging and health care costs, health care economists primarily look at two variables – the pace at which the elderly demographic is growing, and the cost of caring for the aged in relation to the cost of caring for the young. 2 When these variables are figured in to the above equation, we arrive at the following formula which indicates their causal roles with respect to cost. 3 Equation II.

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2 Et = Eyoung(1 + ryoung)t[(Eold/Eyoung – 1)(A)(1 + rA)t(1+rEold/Eyoung -1)t + 1] where Et represents expenditure after time elapsed, tryoung represents the rate at which Eyoung is changing annually A represents the proportion of the population belonging to the elderly demographic (Nold/N) rA represents the rate at which A is changing annually Eold/Eyoung –1 represents the relative difference between the per capita price of caring for the elderly and the per capita price of caring for the young; the rate with the same subscript represents the rate at which this relation changes annually The demographic variables, A and rA, are not difficult to assign values to. Table II.1 shows that Canadian population over the age of 65 years is indeed growing at a rate surpassing the entire rate of population growth (over all ages). Health Care Insurance Commission, Annual Report for the Year Ended June 30, 1977 (Edmonton, 1977); Alberta Hospitals and Medical Care, Statistical Supplement, Alberta Health Care Insurance Plan, 1987-88 (Edmonton, 1988) *Original data was presented in the indicated source separately for females and males; health care spending for females exceeded that for males by approximately55% in 1988 and 48% in 1977.

These data are combined here regardless of sex, however, so as not to convolute the issue being analyzed. Inspection of the above statistics suggests that between 1976 and 1988 in Alberta, the average annual growth rate in per capita health care spending was about 10. 52 per cent across the entire population. For the elderly alone, the growth rate was 13. 34 per cent. Without the elderly, the rate is calculated to be 10. 19 per cent.

Using these values, we find ryoung and rEold/Eyoung-1 to be 10. 19 and 2.82 per cent, respectively for this time period. Figure II. 1 below shows a graphical representation of the basic relationship between health care spending and age. SOURCE: Alberta Hospitals and Medical Care, Statistical Supplement, Alberta Health Care Insurance Plan, 1987-88 III.

Institutionalized Care and the Elderly As is evident from the data discussed thus far, care of the elderly costs more than care of the young, and this discrepancy is increasing over time. This fiscal stress is potentiated by a growing over-65 demographic.In fact, the differences between elderly and young Canadian health expenditures and their relative rates of increase demonstrated in this paper are likely underestimated. Here, only physician payments are considered. Institutional care however, both in hospitals and special-care homes, accounts for the major proportion of medical costs.

4 Unfortunately, calculating institutional spending levels to specific age groups cannot be accurate due to fixed administrative and structural costs.5 As a result, most of the age related fiscal data available only provides a general impression regarding the relative institutional costs of caring for the young versus the old. In Canada, about one-third of hospital beds are long-stay, the majority of which are occupied by aged patients with chronic and disabling conditions. 6 About 40 per cent of the long-stay beds are for patients with psychiatric, rather than purely physical conditions. 7 As for acute care, it is estimated that while patients over the age of 65 years account for 22 per cent of admissions, they tally 43 per cent of patient-days.

This would imply a Eyoung/Eold ratio of almost 2 to 1. 8 Perhaps most relevant to this discussion is the matter of treatment in special health care institutions (nursing homes, institutions for the mentally handicapped, emotionally disturbed, and people suffering from drug addictions). In this area, cursory evaluations of the expenditure data indicate that the cost per person is greater for the aged than the young. 9 It has been proven that operating expenditures of special-careinstitutions are growing at a greater pace than the operating expenditures of hospitals.

Between 1970 and 1987, special-care expenditures grew an average of 15. 62 per cent annually in Canada, while hospital operating expenditures grew only 11. 7 per cent annually. 10 Considering that nursing homes contain two-thirds of Canada’s special health care institution beds9, these expenditure increase rates generally support the hypothesis that an aging population increases the health care cost burden.It is important to note here that the procedures for treating mental patients have not been consistent since the mid-1960s11, with the deinstitutionalization movement and the drive by psychiatrists to differentiate between acute and chronic mental illnesses. Therefore, at least part of the increased cost of caring for the aged is indicative of a different way of providing health services for the mentally ill. We can see the deinstitutionalization trend in figure III.

1, with the number of beds in mental hospitals declining rapidly since the passing of the Hospital Insurance and Diagnostic Services Act in 1957.