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The Effect of Living Longer on Healthcare Spending

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One of our contemporary conventional wisdoms is that healthcare spending is surging because of our expanding life spans. As indicated by writer Austin Frakt, the average American lives three years longer today – reaching nearly 79-years-old, than in 1995. The median age in the U.S. is set to rise to about 40 by 2040, up from less than 38 years today.

In fact, older people need more healthcare. Compared with the prime working age population, those ages 65 to 74 spend twice as much on healthcare. Those between the ages of 75 and 84 spend four times as much, those 85 and older spend six times as much. Data also indicate that the growth in healthcare spending is faster for retirees than for younger Americans.

But while it is true that healthcare costs are rising in part due to growing utilization, technological change represents another key factor. Several studies have concluded that shifts in technology account for at least one third to as much as two thirds of per capita healthcare spending growth. While we can’t or don’t want to stop the aging process, much could be gained in terms of suppressing healthcare costs by containing the costs of implementing new medical technologies.  

Anirban Basu, Chariman Chief Executive Officer of Sage Policy Group (SPG), is one of the Mid-Atlantic region's leading economic consultants. Prior to founding SPG he was Chairman and CEO of Optimal Solutions Group, a company he co-founded and which continues to operate. Anirban has also served as Director of Applied Economics and Senior Economist for RESI, where he used his extensive knowledge of the Mid-Atlantic region to support numerous clients in their strategic decision-making processes. Clients have included the Maryland Department of Transportation, St. Paul Companies, Baltimore Symphony Orchestra Players Committee and the Martin O'Malley mayoral campaign.