2  The relationship between ageing, health, and health expenditures

2.1  Why is there a cross-sectional relationship between age and health expenditure?

Figure 1 shows the cross-sectional relationship between age and government health expenditure in New Zealand, in the financial year 2001/02. The item “public health” covers things such as national campaigns for anti-smoking. The service group “disability support services” includes items such as home support, residential care, and equipment, while “personal health” includes primary, secondary and tertiary medical care. Expenditure on both of the latter types of service increases with age, though the most pronounced increases occur with disability support services. For people aged 85 and over, 61% of health expenditure is accounted for by disability support services.

Why does health expenditure increase with age? The answer seems to be that people in poor health receive more expenditure than people in good health, and that the prevalence of poor health rises with age. There are, of course, many ways of measuring health. The measures that we use in our model are “distance to death” and disability.

Studies in the United States and Canada have found that, on average, people who are about to die make greater use of health services than those who are not. In other words, “distance to death” can predict health expenditure better than “distance from birth” (ie age). The link between distance from death and expenditure is especially strong for acute care (Lubitz and Riley 1993, McGrail, Green, Barer, Evans, Hertman and Normand 2000, Miller 2001, Yang, Norton and Stearns 2003).

Figure 1 – Annual government health expenditure by age and service group (males and females combined), 2001/02

Source: Ministry of Health

Similarly, overseas studies have found that people with disabilities, measured by difficulties carrying out everyday activities such as dressing or climbing stairs, are relatively intensive users of health services (Cutler and Sheiner 1998, National Research Council 2001). Cutler and Sheiner (1998: Table 12) find that, once statistical controls for the effects of distance and death and disability are used, age per se explains little of the variation in Medicare expenditures in the United States.

The overseas studies use data on individual patients. There have, as yet, been no comparable studies in New Zealand. However, some evidence for the salience of disability and distance from death for government health expenditures is provided by Figure 2. The vertical lines show government health expenditure by age and sex. The black lines show expenditure predicted by a simple statistical model in which expenditure is a function of disability and distance to death. The underlying data on expenditure, disability, and distance to death are shown in Appendix Table 1.

The disability prevalence estimates were calculated from the 2001 Post-Censal Disability Survey, which covered a representative sample of over 4000 people with disabilities, including the population in residential care[1]. The survey defined disability as a functional limitation lasting for at least six months and requiring personal assistance or a complex assistive device. Two levels of severity are recognized: non daily (intermittent) and daily (continuous). We use a severity-weighted average of the two, with conditions requiring daily assistance receiving twice the weight of conditions that do not.

Figure 2 – How well do distance to death and disability prevalence predict the pattern of health expenditure by age?

Note – For males the fitted model is (R²=0.992) where , , and are, respectively, per capita expenditure, proportion in the last year of life, and proportion with a disability, for people in age group . For females the fitted model is (R²=0.994).

The model matches actual expenditure remarkably well. It does have some implausible features: for instance the estimated coefficients for males and females are suspiciously different. But the results do provide strong circumstantial evidence that distance to death and disability prevalence are both important to explaining variation in health expenditure in New Zealand.

2.2  Measurement of population health

In this study, a reference to “improving health” implies a reduction in disability rates or mortality rates within each age group. Table 1 shows a stylized example of what we would call “improving health”: disability rates for “young” and “old” both fall between periods 1 and 2. In this example, however, disability rates calculated over the total population actually increase. The reason for this apparent paradox is simple: the proportion of the population in the high-disability older age group is increasing. A failure to distinguish between changing age-specific rates and changing overall rates is, however, a common source of confusion in discussions of health and ageing.