Longer Lives and Lower Health Costs in 2040: Business Class
One of the biggest questions in determining the future sustainability of our health-care system is this: Will the 21st century witness as large an increase in the average life expectancy of the rich countries -- 30 to 40 years -- as occurred during the last century?
Most experts believe it won't. The middle estimate of the U.S. Census Bureau, for example, is that the increase in life expectancy between 2000 and 2050 will be only about seven years, and the estimated increase for the entire 21st century is just 13 years. This is less than half the increase that occurred during the 20th century. The same conservatism is evident in the projections of the United Nations, the Organization for Economic Cooperation and Development, and other national and international agencies.
Yet there are persuasive arguments for a more optimistic view of the course of changes in health and longevity during this century. One of these arguments is based on the projection not of past changes in average life expectancy but of record life expectancy since 1840.
Record life expectancy is defined as the highest life expectancy experienced by any country at each point in time. For example, the record life expectancy at birth in 1840 was found among Swedish women, who lived on average a bit over 45 years. In 2000, Japanese women achieved a record life expectancy of almost 85 years. Fitting a curve to such best practice observations over a period of 160 years yields a linear curve, which suggests that for the foreseeable future, female life expectancy will increase at 2.4 years per decade and male life expectancy will increase at 2.2 years per decade. These equations lead to the prediction that by 2070 female life expectancy in the U.S. will be between 92.5 and 101.5 years, which substantially exceeds the forecast of 83.9 years made by the Social Security Administration in 1999.
The fact is that demographers’ past predictions of maximum life expectancy have been notoriously conservative when these forecasts were based on average experience. In the late 1920s, L.I. Dublin, the chief actuary of Metropolitan Life Insurance Co., put a cap of 64.75 years on life expectancy for both men and women. In 1936, he collaborated with the leading mathematical demographer of the first half of the 20th century to publish a revised upper limit of 69.93 years. More recently, a leading gerontologist set an upper limit on life (excluding some major breakthrough in molecular biology) of 85, plus or minus 7 years. Generally speaking, these caps tend to be in the range of 5 to 10 years beyond the observed life expectancy at the time the forecasts were published.
The accelerating decline in the prevalence of chronic diseases during the course of the 20th century supports the proposition that increases in life expectancy during this century will be fairly large. At the beginning of the last century the burden of chronic diseases among elderly Americans was not only more severe but began more than 10 years earlier in the life cycle than it does today. Moreover, the number of comorbidities at each age between 50 and 70 is well below levels that prevailed a century ago. This is, according to one study, equivalent to pushing back old age, since an increase of one unit in a comorbidity index is the equivalent of being a decade older. Studies of changes in functional limitations among persons who have reached age 65 since the early 1980s indicate that such limitations declined at an accelerating rate during the balance of the 1980s and the 1990s.
One factor arguing in support of the optimists' projections is the increasing span of years that individuals have free of chronic conditions. For those who reached age 65 during the first decade of the 20th century, the average age of onset of chronic disabilities was about 51. By the 1990s, however, the average age was more than 10 years later. Moreover, these disabilities are now generally milder, and many effective interventions to reduce their impact are available. The outlook for new and more effective technologies to deal with chronic disabilities through the marriage of biology and microchip technology is very promising. Indeed, some devices that combine living cells and electronics to replace failed organs are already at the stage of human trials. Somewhat further off, but even more promising, are advances in genetic engineering that will produce cures for what are now untreatable diseases.
These forecasts of increased longevity, however, shouldn't lead us to despair about ballooning and unsustainable health-care costs.
Here's why: The principal factor driving growth in expenditures on health care is demand. As people get richer, they want to spend a larger share of their income on improving their health. The fact is that the structure of consumption has changed drastically in the U.S. since the late 19th century and the growth in demand for health care has to be evaluated in that context.
Is this development bad? Should governments seek to thwart consumer demand for health-care services? Such a policy would be necessary only if rich nations lacked the resources to provide that much health care. However, the growth in productivity of traditional commodities, including food, clothing, shelter, and consumer durables will release the resources required to provide expanded health care. In the U.S. a century ago, it took about 1,700 hours of work to purchase the annual food supply for a family. Today it requires just 260 hours. If agricultural productivity grows at just two-thirds of its recent rates, then by 2040 a family’s annual food supply may be purchased with about 160 hours of labor.
Public policy shouldn't be aimed at suppressing the demand for health care. Expenditures on health care are driven by demand, which is spurred by income and by advances in biotechnology that make interventions increasingly effective. Just as electricity and manufacturing were the industries that stimulated the growth of the rest of the economy at the beginning of the 20th century, health care is the growth industry of this century. It is a leading sector, which means that expenditures in this area will pull forward a wide array of other industries including manufacturing, education, financial services, communications, and construction.
The pressure to suppress health-care expenditures arises from the way that governments and businesses currently provide insurance in rich countries. These institutions need to provide a basic and affordable package of health services. Beyond that, they should offer additional policies at higher costs that provide upscale services (such as private rooms, the most expensive alternative procedures and medicines, the shortest waiting times, the fullest coverage of optional services, and access to physicians anywhere in the country, not just in local clinics).
Health care isn't a homogeneous good, all of which is essential. There are large luxury components that may appeal to some but that aren't necessary for sound basic care. It is, of course, necessary to provide medical care for those who are too poor to purchase it, but for those with more resources, shifting to private savings accounts for health services is an effective way to relieve pressure on the finances of both businesses and government.
(Robert William Fogel, is distinguished service professor of American institutions at the University of Chicago Booth School of Business and director the Center for Population Economics. He was awarded the Nobel Memorial Prize in Economic Sciences in 1993. He is the author, most recently, of "The Escape from Hunger and Premature Death, 1700–2100: Europe, America, and the Third World and The Changing Body: Health, Nutrition, and Human Development in the Western World since 1700." The opinions expressed are his own.)
To contact the writer of this column: Robert.Fogel @chicagobooth.edu.
To contact the editor responsible for this column: Max Berley at email@example.com.