People to Live Longer, Healthier Lives: Society Hardest Hit

Via Arnold Kling comes this hilariously negative warning about the perils of people living longer:

Life expectancy for Americans by 2050 will surpass government projections by as much as eight additional years for women and five for men, with disastrous implications for a country unprepared for an explosion of elderly, a new study released today says.

Forty years from now, women will live 89.2 to 93.3 years; and men, 83.2 to 85.9 years — driven by ongoing advances in both treatment of major fatal diseases and slowing of the aging process — according to the report in a journal of health and health policy, The Milbank Quarterly.

U.S. government projections for life expectancy by 2050 now stand at 83.4 to 85.3 years for women; 80 to 80.9 years for men.

It's bad enough that the article doesn't even mention the positives. More time with the grandkids, more time to travel? Bah, the budgets must be balanced!

Even if one is inclined to look solely at the budget, this isn't all that hard a problem to solve. There's fairly strong evidence that we could cut Medicare in half and suffer no adverse health consequences. Social Security isn't actually all that damaging to the budget, and relatively minor increases in the retirement age would handle the longevity "problem".

Whether or not we choose to do so as a society is another matter. I tend towards optimism in this matter, based on Herb Stein's old maxim that what cannot go on forever will not. We won't spend 150% of GDP on health, because we can't. Libertarians seem to run towards a pessimistic outlook on an imminent implosion of society from excess government (at least the ones on the internet do), but that has hardly been the record of the last 200 years.

But as Bob Fogel recently noted, why should we be concerned that we're spending more money on health care? What else are we going to spend it on anyway?

The main factor is that the long-term income elasticity of the demand for healthcare is 1.6—for every 1 percent increase in a family’s income, the family wants to increase its expenditures on healthcare by 1.6 percent. This is not a new trend. Between 1875 and 1995, the share of family income spent on food, clothing, and shelter declined from 87 percent to just 30 percent, despite the fact that we eat more food, own more clothes, and have better and larger homes today than we had in 1875. All of this has been made possible by the growth in the productivity of traditional commodities. In the last quarter of the 19th century, it took 1,700 hours of labor to purchase the annual food supply for a family. Today it requires just 260 hours, and it is likely that by 2040, a family’s food supply will be purchased with about 160 hours of labor.12

Consequently, there is no need to suppress the demand for healthcare. Expenditures on healthcare are driven by demand, which is spurred by income and by advances in biotechnology that make health interventions increasingly effective. Just as electricity and manufacturing were the industries that stimulated the growth of the rest of the economy at the beginning of the 20th century, healthcare is the growth industry of the 21st century. It is a leading sector, which means that expenditures on healthcare will pull forward a wide array of other industries including manufacturing, education, financial services, communications, and construction.

I'd rather, of course, this expansion be done primarily through the private sector. But if it isn't, and government expands, well, what of it? Our extra money from productivity will be going to finance longer lives, and we will be slightly worse off (from deadweight loss from taxation) than otherwise. Suboptimal, yes. A crisis, no.

I should note, by the way, that these projections are somewhat conservative relative to some others out there. People have dire predictions about those as well, which I find equally non-credible.

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Interest savings nullifies longevity costs.

Most of the expenditures for the last 10 years occur in the last 2. Around 80% IIRC (I'll try to get a cite). So for every year you extend life you delay spending about 38% ( - ) of the cost of the last ten years of life. This saves about 2% of the cost of the last ten years in interest payments (assuming 5% interest, which isn't unreasonable). So as long as we're prolonging the time before the expensive problems start health care isn't that much more expensive.

Of course if _productive_ lifespan is increasing then it's even less of a problem. Assuming that each year of lifespan comes with an extra 6 months of commercially productive lifespan and delays the onset of the expensive final phase by 11 months the person only has to produce 1/6 of his monthly final stage health care expenses to break even. This is without interest with interest, even of only 3.6% interest they save 1.25% of the last ten years health care costs from delaying the expensive stage by 11 months. The extra month of expensive stage is about 1.67% of the last ten years costs. So there's only about .42% of LTY costs extra. The person therefore only has to produce .07% of his LTY costs per month under these conditions to break even. Note this is without assuming that there is any value to an increased commercially productive or an increased lifespan other than the price of his labour.