Same ‘old-old’ story

Based on “official nomenclature,” economist Robert W. Fogel, who turns 83 in July, is not yet “old-old.” Only people 85 and up qualify for that status. “I’m just old,” Fogel said.

It’s not a trivial distinction. In the B. Peter Pashigian Memorial Lecture May 13 at Chicago Booth, Fogel presented his working paper, “Forecasting the Cost of U.S. Health Care in 2040,” exploring the complicated economics of an aging population. The Nobel laureate and Charles R. Walgreen distinguished service professor of American institutions offered “tentative answers” about the course of physical and financial well-being, assuming many more old-old people will be around a generation from now.

That safe assumption comes from the steep upward curve in life expectancy during the 20th century, from 45 to almost 80. A decrease in the prevalence of chronic diseases, delays in onset age, and more effective treatments also promise improvements in the quality and quantity of life. But at what cost? “Advances in both surgical and drug therapies have significantly reduced the rate in which chronic conditions turn into disabilities that severely impair functioning,” Fogel said. “However, many of the surgical procedures are quite expensive, and the cost of new and more effective drugs is increasing sharply.”

Fogel’s analysis indicates that demand, more than aging, will drive costs higher, perhaps to as much as 29 percent of GDP by 2040. Public policy, he believes, should not attempt to restrain that increase. “As people get richer,” he said, “they want to spend a larger share of their income on improving their health.” Between 1875 and 1995 that share grew from 1 percent to 9 percent while dwindling for other necessities like food, clothing, and shelter.

Governments and businesses, he said, need to provide basic, affordable coverage, but more expensive policies and private savings accounts for health services should be available for people with the means. “Health care is not a homogenous good, all of which is essential. There are large luxury components in health services that may appeal to some tastes but that are not necessary for sound basic health care”—for example, private rooms, shorter waiting times, expensive alternative treatments, and physicians nationwide.

“And if you want to,” Fogel said, “you can throw in 200 channels of TV.” Kids today.

Jason Kelly

May 22, 2009