01 Nov 2005

The Influence of Supply and Demand Factors on Aggregate Health Care Expenditure with a Specific Focus on Age Composition

Erika Schultz

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Expenditure on medical treatment has tended to increase as a proportion of national income throughout the European Union. Overall there has been a rising trend in the mean as low-spending countries such as the UK have faced political pressure to spend at least the average EU proportion of their national income on the provision of health services, medical treatment and long-term care. A particular concern is that with an ageing population and therefore the prospect of more old people around, the pressures on health care expenditure will increase further.
The aim of this 6th work package (WP6) of the AHEAD project is to explain how demand and supply factors influence aggregate health care expenditure with a specific focus on age composition. Several studies in the past have shown that health care expenditure is not only influenced by demand factors, but also by those on the supply side, particularly technological progress, political decisions and economic framework conditions.
In contrast with other studies (and aside from the focus on age), WP6 emphasises variables describing health care and financing systems. The idea is that the inclusion of these variables affords a better explanation of health care expenditure. This report collects data on demand, supply and utilisation of health care from official statistics and creates additional variables describing the health care and financing systems based on a literature review. In total, 63 variables are included in a basic data set for 28 countries, mostly covering the period 1980-2003. A brief statistical overview shows the development of some of the variables in the countries covered. The expected strong connection between health care expenditure and GDP can be seen in a cross-section analysis for 2003. The relation between health care expenditure and the share of the elderly in the population was also positive, but not as strong as in the case of GDP.