Age, morbidity, or something else? A residual approach using microdata to measure the impact of technological progress on health care expenditure

Abstract

This study measures the increment of health care expenditure (HCE) that can be attributed to technological progress and change in medical practice by using a residual approach and microdata. We examine repeated cross-sections of individuals experiencing an initial health shock at different point in time over a 10-year window and capture the impact of unobservable technology and medical practice to which they are exposed after allowing for differences in health and socioeconomic characteristics. We decompose the residual increment in the part that is due to the effect of delaying time to death, that is, individuals surviving longer after a health shock and thus contributing longer to the demand of care, and the part that is due to increasing intensity of resource use, that is, the basket of services becoming more expensive to allow for the cost of innovation. We use data from the Danish National Health System that offers universal coverage and is free of charge at the point of access. We find that technological progress and change in medical practice can explain about 60% of the increment of HCE, in line with macroeconomic studies that traditionally investigate this subject.

Keywords: aging; health care expenditure; morbidity; technological; time-to-death.

FIGURE 1

Health care expenditure after an initial health shock in 2005‐6 and 2013‐14. Prices reported in Euros at 2017 level

FIGURE 2

Cumulative survival probability after a health shock in 2013‐14 and 2005‐6. Predictions from a logit model

FIGURE 3

Residual increment of health care expenditure in 2013‐14 versus 2005‐6 (baseline). Total increment (continuous line) and decomposition into delaying time to death effect (dotted line) and intensity effect (dashed line). Cumulative distribution over the time elapsed from initial health shock. (Y = 1000 €)