A Health Cost Time Bomb?

Aging boomers will test the system

Can America's health-care system survive the aging of the baby boom generation? The omens are hardly favorable. After slowing for several years, employer health-care costs are again rising at a double-digit pace. Seniors' complaints about surging prescription drug prices are prompting legislators to add drug benefits to Medicare. And many health maintenance organizations say government reimbursement limits are forcing them to stop enrolling Medicare patients.

Today, 12.5% of the U.S. population is 65 years old and over. In a decade that share will start to rise sharply, growing to 16.6% by 2020. With the nation already devoting 5% of gross domestic product to health care for the elderly--and with per capita medical spending on old folks running 4.4 times that for other Americans--many observers see an inevitable cost crisis ahead.

It ain't necessarily so, says Princeton University economist Uwe E. Reinhardt. Writing in the Journal of Economic Perspectives, he argues that large international variations in oldsters' medical costs (and variations within the U.S. itself) suggest that the problem is eminently manageable--if Americans are willing both to look critically at their health-care system and to learn from other nations' experiences.

All the major European nations and Japan already have elderly population shares about as large as the U.S. will face in 20 years' time, notes Reinhardt. Yet they spend far less than the U.S. currently does on its seniors' medical needs, both as a share of GDP and in per capita terms. In 1997, for example, the U.S. spent an average of $12,090 in health care for each senior, or 5% of GDP for the elderly's total medical bills. In France, Germany, and Japan, by contrast, per capita outlays ranged from $4,700 to $5,300. And their total outlays on such care consumed only 3.4% to 3.5% of GDP, even though 16% to 17.5% of their populations were over 65.

While many believe the U.S. is getting more for its money, Reinhardt points out that life expectancy for 65-year-old men and women in Japan and several European countries is actually higher than in the U.S., even when adjusted for disability. Moreover, surveys suggest that Americans are less satisfied with their system. And poor elderly Americans spend a third of their own incomes on health care--far more than in any other industrialized nation.

How do other countries do it? Part of the answer is that health professionals aren't as highly paid overseas. Managerial and administrative costs often are sharply lower. And treatment is often less high tech. But a big difference, Reinhardt says, is that "Europeans and Asians routinely search the globe for health-care innovations--in both treatment and delivery methods--that might be imported from other nations."

If Americans could set aside their belief in the superiority of their health system and exhibit a similar willingness to learn from efficient practices overseas, the aging of the baby boomers could prove to be a paper tiger, maintains Reinhardt. "The experience of other nations," he says, "suggests that it should be possible to provide adequate health care to the elderly for a lot less than we are currently spending."

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