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Room: Helsinki Hall
Time: Fri 14:30 PM-15:45 PM

The Red Herring and Beyond

Chair: Stefan Felder (University of Duisburg Essen)

Session Description

In the debate over ever increasing health care costs, a widespread argument states that ageing of the population is a crucial driver of health care expenditure. In a well cited paper published in 1999 in Health Economics, Zweifel et al. argued that this claim is a ‘red herring’ (i.e. that it is misleading for policy). Their dissent was based on the analysis of health care expenditure of deceased persons in their last years of life. The number of quarters remaining until death was significant in explaining health care expenditure, while the age of the persons was not. If this holds generally, a shift in the mortality risk to higher age will not affect lifetime health care expenditure, as death occurs only once in every life.
The red herring claim has been confirmed by a number of subsequent studies. Several authors, however, also have raised methodological concerns about the model, contending that multicollinearity between and endogeneity of the explanatory variables biased the estimation results. These concerns were since addressed, as far as possible given the limitations of the data, and the red herring claim remained. More recent work, studying components of health care expenditure, found significant age effects in long-term care. However, this result was confined to the probability of becoming chronically ill; no age effect was detected for conditionally positive long-term care expenditure.
The organized session will revisit the red herring hypothesis. Friedrich Breyer is an early contender. He claims that the empirical studies to date have not sufficiently addressed the impact of the passage of time on the age profile of health care expenditure. It may well be that physicians adjust their treatment strategy parallel to the increase in people’s longevity. This may lead to more aggressive treatment and thus higher expenditure in old age as we move on in time. In the first session of the conference, Friedrich Breyer will address this issue, presenting the results of a panel estimation as well as a simulation study with German data. His evidence rejects the red herring claim.
The second paper is by Claudia Geue and colleagues. She uses a longitudinal dataset covering no less than 35 years, which allows her to study the evolution of the age profile of the cost of dying over time. The second advantage of these Scottish data is that they contain detailed diagnosis information on the patients treated in hospitals, which can be considered as confounders in the econometric study. Claudia Geue’s contribution is another exploration of the red herring issue.
The third presentation is by Peter Zweifel. He will address the red herring from different angles, borrowing from his extensive work on this topic, and draw implications for health policy.

Session Organizer: Stefan Felder (University of Duisburg Essen)

Presentations

1. Population ageing in Scotland: An analysis of the implications for healthcare expenditure using a MIDSPAN study

   Presenter: Claudia Geue (University of Glasgow)

2. Population Ageing and Health Care Expenditures: A New Test for Germany

   Presenter: Friedrich Breyer (University of Constance)

3. Morbidity Compression, Morbidity Expansion, Red Herring – What Could It Mean for Health Policy?

   Presenter: Peter Zweifel (University of Zurich)