Those born between 1910 and 1930 saw fit to raise a generation which could care for them in their old age. Their children, the “Baby Boomers”, were not so far-sighted. Though the Earth has benefitted from the decrease in population growth in Western countries in the last 50 years and though we boomers have had less burdensome responsibilities and more interesting careers than our parents, there is a price to be paid. Western countries are bracing for the inevitable spike in health care costs that comes with shuffling the boomers off this mortal coil.
I would like to suggest that this problem is no more complicated than putting a little money aside for this eventuality but there are a few factors that make it difficult to say just how much money is needed. Chief among these is the fact that health care costs have been increasing as a proportion of the total economy for many decades; an increase that is only partly related to the aging of the population. Wikipedia’s figure on this shows the steady increase of health costs in a range of countries. The political and economic pressure to keep expenditures rising is built into a system where cost controls often lead to longer waiting times and a fear that health care will not be available when it is needed. Another difficulty is that most health care systems are built with life-threatening and complex diseases in mind. The reality of day-to-day medicine is that the overwhelming majority of the work involves low risk and preventable conditions as well as a strong interaction with social services. In places like Canada, patients with less serious conditions clog access to the care designed for the very sick. Getting the right balance between heroic life saving measures and day-to-day health coaching is important for preventing run away cost increases in medicine.
Why pay more?
By definition, a commodity that increases its market share in a growing economy is a luxury good. This seems like the wrong way to look at health costs, since they address the conditions that prevent us from working, caring for our families and generally enjoying life. Still, the costs keep increasing. If aging is not the main factor, what is?
One theory is called Baumol’s cost disease. Basically, health care needs the personal touch of well-trained people. The options for making it more efficient or automated are limited if quality patient-caregiver time is a non-negotiable. Caregivers naturally compare their salaries to highly trained people in other disciplines, which may have many more opportunities to build efficiences leading to overall economic growth. The theory, then, is that despite all the technical accomplishments in medicine, the system is not producing enough new services over time. The wage demands of the large work force continue to increase at a rate that is greater than their increasing productivity. As a result, we end up spending more of the economy’s wealth to get a constant amount of health care.
Another theory is that rising costs do reflect more services over time, either because people have better access to the system (as is beginning to happen in the United States) or because technology is pushing back the frontiers of diagnosing and treating an ever increasing list of ailments. It is hard to say what effect Obamacare will have on health care costs but it is instructive to point out that US health costs began to become distinctly more expensive at about the time that other countries were introducing universal health coverage in the 60s and 70s (see above). More patients need not mean higher costs. It is possible that new technologies, especially medical imaging and drugs, are driving the increasing costs in health care but this doesn’t account for the fact that wages and facility costs (bricks and mortar) are rising rapidly nor does it deal with the fact that some technologies (such as those allowing day surgery) reduce costs.
So, how do Baby Boomers ensure that they are not a burden on future generations? How do they pay for their share of what seems to be a rapidly expanding service sector? The answer will vary for different countries. In my next post I would like to offer some solutions for Canada. For this, I will draw on Jeffrey Simpson’s recent book, entitled “Chronic Condition“.