Costly Ageing or Costly Deaths? Understanding Health Care Expenditure Using Australian Medicare Payments Data

In health economics and health care planning, the observation that age cohorts are generally positively correlated with per capita health expenditures is often cited as evidence that population ageing is the main driver of health care costs. Several recent studies, however, challenge this view. Zweifel et al. (1999) and Felder et al. (2000), for examples, find that individuals incur the highest health care costs around the time before their death. Thus, they argue, it is proximity to death rather than ageing that is driving health care costs. This paper examines the issue by estimating a two-equation exact aggregation demand model using Australian Medicare payments data over an eight-year period (1994--2001). The results suggest that once proximity to death is accounted for, population ageing has either a negligible or even negative effect on health care demand.